Zayo faces learning curve in dark fiber E-Rate market

Image: Patrick Q / CC BY-NC 2.0

Zayo is educating itself on how to market dark fiber to school districts looking to take advantage of recent changes in the FCC's E-Rate program.

Dan Caruso, CEO of Zayo, told investors during its fiscal fourth quarter 2016 earnings call that the schools in its regions are still trying to figure out what they can do with a dark fiber service.

“Some of them were able to move forward with projects, while many are probably using this as a learning period of what does it mean to have a dark fiber solution,” Caruso said during the earnings call, according to a Seeking Alpha transcript. “Optical vendors benefit from the dark fiber solution, and companies like Zayo are probably still on the learning curve of how to present the merits of the dark fiber solution.”

“We’re hopeful that it turns into a much bigger opportunity in the next E-Rate season,” Caruso added. “I know we have work to do to get better organized to be out in front of what should be a pretty material opportunity.”

Changes in the FCC’s E-Rate program are a big part of the increased attention on dark fiber opportunities for school district customers. Under the FCC's E-Rate order issued in 2015, the regulator amended the eligible services list to support the equal treatment of lit and dark fiber services. Local school districts will now be able to purchase either kind of service depending on their specific needs via an FCC Form 470 application.

Already, Zayo is seeing results of selling dark fiber to school districts. During its fiscal fourth quarter, Zayo won two contracts with school districts in Colorado and Texas, both of which leverage existing fiber to the tower builds that were completed for a large wireless carrier.

In Denver, Zayo will build a 618-mile dark fiber network with the Denver Public Schools (DPS), Colorado’s largest school district. The network will connect 153 schools and sites, including two DPS data centers. Similar to other E-Rate builds, Zayo said that 562 miles of the network is already in place or under construction, with 56 miles still to be built.

Building off a 122-site FTTT build in Dallas, Zayo won a 1,178-mile Texas school district contract. The service provider will extend services to the area schools located in the Texas Education Service Center Region 11 via a fiber network build that's under construction in Dallas-Fort Worth for a major wireless operator. 

Overall, Dark Fiber Solutions was a key revenue source for Zayo, rising 8.6 percent year-over-year to $106.9 million. However, these gains were slightly impacted by a customer terminating a contract during the quarter.

“We actually had a really good quarter for metro dark fiber, which was offset by the mobile infrastructure side being low and optically lower because of the customer cancellation,” Caruso said.

For more:
- see the Seeking Alpha earnings transcript (sub. req.)

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