UPDATED: tw telecom maintains focus on organic fiber network growth

tw telecom (Nasdaq: TWTC), unlike many of its competitive service provider counterparts isn't anxious to make a big acquisition anytime soon. Instead, the competitive service provider would rather invest its capital in building out its own fiber network to more buildings to deliver Ethernet and related IP services to its growing large business customer base.

Mark Peters, tw telecom


Speaking at the Deutsche Bank 2012 Media & Telecom Conference, tw telecom outlined how it is organically building a profitable business.

A key point of the service provider's success is that it has seen ongoing top line and bottom line growth for 29 consecutive quarters. The service provider maintained this trend even during the recession when many businesses cut back on telecom spending.

To grow their business, tw telecom has invested 23-25 percent of its revenue into capex spending, with 80 percent of that figure being what it calls success-based capital.

"The biggest piece of that success-based capital is going into new customer buildings," said Mark Peters, VP and CFO of tw telecom. "We first sign a customer contract and then we build to it."

In 2011, tw telecom increased the amount of buildings under the success-based model by 30 percent. To date, it has 15,000 buildings connected to its fiber network. For each of the 75 markets it operates in today, it will gradually build out more fiber rings to reach more customers and then add buildings after they secure a deal with a customer.

While it plans to continue building out the fiber network to more buildings, Peters said that they "focusing more on selling into those existing buildings."

Larissa Herda, tw telecom


Much like its refusal to deliver DSL services in the late 1990s, Larissa Herda, CEO and chairman of tw telecom, says it refuses "follow the herd" to maintain its revenue growth path.

The company does not feel like it has to make a lot of acquisitions to achieve growth, despite making an early bet on delivering Ethernet services to businesses at a time when T1 and Frame Relay services dominated the scene.

One area that's been a hot acquisition target for a number of tw telecom's peers has been the data center segment.

Not content to follow the same path, tw telecom's approach with the data center market has been as an enabler by providing necessary fiber connectivity to these facilities.

"We decided we'd partner with data centers and partner hosting companies and enable the cloud with our network," Herda said. "When we take a look at our data center and cloud strategy, it's about deepening our relationships that we have with those data centers."

Currently, tw telecom has fiber connections to 350 third-party data centers.

Herda said its presence in these data centers is actually helping those providers attract more customers while simultaneously offering its own customers more data center options. This presence is augmented with its intelligent network dynamic capacity capability that lets customers dial up bandwidth as needed.

"Imagine the intelligent network dynamic capacity capability in a data center where a customer that's connected to us they can turn up the capacity like that," Herda said.

That's not to say it has not made acquisitions. Over the past decade it acquired a number of fiber-based providers and an Internet service provider that it has grown organically to become one of the largest Internet backbone networks.

Herda admits that while the competitive provider has not been as aggressive on the acquisition front because "we're really good at organic growth so we don't have to make an acquisition to grow because we already got it."

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