Zayo’s aggressive, organic acquisition strategy to build out and further its network reach positions the service provider to enhance its on-net fiber count inside a greater base of business buildings.
Interestingly, Zayo trailed Lightower, which has now become part of Crown Castle, on Vertical Systems Group’s recent on-net fiber locations report. Both of these providers have about 20,000 on-net business building connections.
VSG’s on-net fiber list does not include fiber to cell towers in its report, a segment that Zayo has aggressively built a business upon by selling dark fiber solutions to large wireless operators. Because there has been growing confusion over how buildings are counted, the VSG report focused solely on buildings connected to buildings that house equipment to deliver business services.
Zayo, which will report its earnings next week, currently has about 20,000 buildings connected to its fiber network. One of the striking differences between these two providers is that Zayo has a presence in other regions, including Canada and Europe.
Jennifer Fritzsche, senior analyst for Wells Fargo, said that Zayo is well positioned to enhance its on-net fiber count by leveraging and extending its existing fiber assets that often connect to nearby cell towers and other facilities.
“While Lightower covers some very dense markets (i.e. NYC), ZAYO has a deeper metro fiber footprint than ANY provider,” Fritzsche said. “What does this mean? In our view—the runway is long and opportunity rich for ZAYO to capture more buildings because the 'core' of its assets should allow it the ability to build these 'off ramps' at a faster and more capital efficient pace than others with less dense fiber assets.”
Zayo is already multitasking its fiber, particularly in areas where it has won large-scale wireless backhaul deals, to fulfill on-net fiber deals for enterprise customers.
When it won a large-scale e-Rate deal with the Texas Education Service Center Region 11, Zayo extended services to the area schools via a fiber network build that it had under construction in Dallas-Fort Worth. The 1,178-mile platform consists of 440 miles of previously planned FTTT build, 443 miles of existing network and 295 miles of new construction.
Focus on bookings
A key element of Zayo’s recipe for growth is its customer bookings.
With former Level 3 executive Andrew Crouch at the COO helm, Zayo has been working to revamp its sales team.
However, Fritzsche said that the analyst firm does not expect a large jump in Zayo’s results.
“We believe the sales force rebuild is going in the right direction under the watch of COO Andrew Crouch and the overall environment is improving from the late part of 2016,” Fritzsche said. “That said we would not expect any significant sequential ramp in bookings.”
Wells Fargo has forecast Zayo will report $7.3 million in new bookings when it releases earnings next week. This estimate is an increase over the $6.9 million in the previous quarter.
“We believe the stock has the potential to work if it is able to string a few decent quarters of booking improvement together,” Fritzsche said. “In our view, bookings are THE key metric for ZAYO as they offer color on the forward looking environment.”
CenturyLink, Consolidated to raise profiles
Zayo and Lightower are not the only fiber-centric providers that could see their on-net fiber footprints ripen.
A slew of pending acquisitions will also alter the on-net fiber footprint market segment.
When CenturyLink completes its pending acquisition of Level 3, the service provider will immediately enhance its on-net fiber reach by 75% to reach a total of 75,000 buildings. As a result, the telco will have a larger footprint to deliver Ethernet and software-defined services.
But the new CenturyLink will soon face a bigger threat from Consolidated.
By acquiring FairPoint, Consolidated immediately established itself as the ninth largest fiber player with a presence in 24 states and 8,000 on-net buildings.
“Pending M&A also may mean new players can join this 'cool kids' fiber group,” Fritzsche said. “Don't forget CNSL!”
This greater density will enable Consolidated to pursue more dark fiber and lit Ethernet service opportunities with a larger mix of business and wholesale customers.