Tuesday, July 11, 2017

Zayo – Growing by leaps and bound

If anyone is keeping a list of the most acquisitive companies in the telecom space, Zayo Group Holdings must have a spot toward the top. Zayo got its start in 2007, when Dan Caruso, John Scarano and Matt Erickson saw an opportunity for a new play in a game they knew well – building the highest capacity network infrastructure dark fibre and lit services, including carrier-neutral colocation, mobile infrastructure, wavelengths, Ethernet and IP services. All three co-founders had previously worked at Level 3 Communications, which built a reputation for its nationwide, wholesale transport network and competitive local exchange carrier (CLEC) business. Level 3 reached a high-level of prominence by its bold strategy, quick deal making and willingness to raise the huge sums of money needed for a rapid entrance onto the global telecoms stage.  Zayo seems to have taken all of these characteristics and multiplied them 10x.

Zayo by the numbers (currently):

·         122,000 fibre route miles.

·         10 million fibre miles.

·         46 data centres across North America and Europe.

·         Presence in 370 markets.

Quick update on the financial picture

Zayo's revenues are primarily derived by leasing dark fibre (23%), dark fibre for mobile infrastructure (6%), wavelength services (15%), Ethernet services (9%), IP services (7%); interconnect-oriented colo (10.5%), and Allstream Canada (23.1%). For its most recent third quarter, ended March 31, 2017, Zayo reported $550.2 million of consolidated revenue; including $470.9 million from the Communications Infrastructure segments and $79.3 million from the Allstream segment. Net income amounted to $27.0 million, including $17.3 million from the Communications Infrastructure segments and $9.7 million from the Allstream segment.

Getting to this stage

Since its founding in 2007 through to the current quarter, Zayo has been in a constant process of hunting for, acquiring and integrating other network operators. Outside observers give the company especially high marks in network integration, a technically difficult process requiring careful planning and methodical accuracy so as not to disturb live customer traffic on the old or new network. Zayo operates a single platform for delivering a uniform set of services despite having swallowed over 30 networks over the past 10 years. Wikipedia puts the number of Zayo acquisitions at 39. Here they are in reverse chronological order based on the year the deal was first announced:

·         2017 - two data centres in San Diego from KIO Networks for $12 million, located at 12270 World Trade Drive and 9606 Aero Drive, with more than 100,000 sq feet of space and 2 MW of critical, IT power, with additional power available.

·         2016 – Electric Lightwave.

·         2015 - Latisys, IdeaTek Systems, Viatel, a new Dallas, TX data centre from Stream Data Centers, Clearview International and Allstream, Canada's main facilities-based inter-exchange carrier which has its roots in the railway telegraph business.

·         2014 - Dallas-based data centere operator CoreXchange, Neo Telecoms and Geo Networks.

·         2013 - Austin-based data centre operator Core NAP, Access Communications, Midwest-based dark fibre operator FiberLink and Corelink Data Centers.

·         2012 - AboveNet, FiberGate, Arialink, US Carrier Telecom, First Telecom Services, and Maryland-based Litecast/Balticore.

·         2011 - MarquisNet data centre business in Las Vegas and 360networks.

·         2010 - AGL Networks, American Fiber Systems and Dolphinis Cummins Station data centre and colocation services.

·         2009 - FiberNet Telcom Group.

·         2008 - Columbia Fiber Solution, Adesta Communications assets, two sets of fibre assets from Citynet, two sets of fibre assets from Northwest Telephone and CenturyTel Regional Markets.

·         2007 - Memphis Networx, VoicePipe, Onvoy Inc, PPL Telcom and Indiana Fiber Works.

Among the latest acquisitions were two of its most significant buys: Allstream and Electric Lightwave. Allstream was a Canadian leader in IP communications and the only national provider that works exclusively with business customers. Allstream brought over 9,000 route km of metro fibre network concentrated in Canada's top five metropolitan markets (Toronto, Montreal, Vancouver, Ottawa and Calgary) that connect to approximately 3,300 on-net buildings. In addition, Allstream has an approximate 20,000 route km long-haul fibre network connecting all major Canadian markets and 10 U.S. network access points. In addition, Allstream operates colocation space in Toronto, Montreal, and Vancouver. Zayo has previously stated that approximately half of Allstream's revenue is a direct fit with its existing core business. The remaining half will be organised into two additional segments: Voice and Universal Communications (approximately one third of Allstream’s revenue), and Small Business (primarily enterprise voice). Each of these will be separated into standalone business units in parallel with the formation of Zayo Canada. Perhaps Zayo will sell these operations.

Zayo agreed to acquire Electric Lightwave, formerly known as Integra Telecom, for $1.42 billion in cash. The recently-completed acquisition of Electric Lightwave, which provides infrastructure and telecom services primarily in the western U.S., was valued at $1.42 billion. Electric Lightwave had 8,100 route miles of long haul fibre and 4,000 miles of dense metro fibre in Portland, Seattle, Sacramento, San Francisco, San Jose, Salt Lake City, Spokane and Boise, with on-net connectivity to more than 3,100 enterprise buildings and 100 data centres.

Recent management changes

There has been considerable turnover in the company's executive ranks in the past year. Within the year, has Zayo recruited three high-powered execs from Level 3, although one has since gone back to Level 3.

Jack Waters, CTO of Zayo Group, was previously CTO at Level 3 where his responsibilities included global network technology, architecture, engineering, process and security. He had been with Level 3 since 1997.

Andrew Crouch, president and COO, previously served as regional president of EMEA for Level 3, where he also was responsible for its Global Accounts Division.

Ed Morche, president of sales, was previously group VP of sales at Level 3 where he was responsible for sales, sales engineering, business operations, commercial services and metro market expansion for the company's largest business unit – North America’s Enterprise and Government customers. On June 22nd, Morche resigned his new position at Zayo in order to return to Level 3. His decision to return to Level 3 comes just as CenturyLink prepares to complete its acquisition of Level 3.

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