Uniti’s Gunderman: Sprint’s network densification, wireless industry’s 5G plans benefit our fiber business

As Sprint and other large wireless operators move forward with their 5G and small cell densification plans, Uniti says its growing fiber network is well positioned to become another source of lit and dark fiber backhaul.

Kenny Gunderman, CEO of Uniti, told investors during its fourth quarter earnings call that the service provider could also see benefits from Sprint’s recent plans to improve and expand its wireless network.

Kenny Gunderman

“Sprint’s recent announcement to increase investment in their network have generated a positive tailwind for wireless carrier capital spending that we expect will benefit both our fiber infrastructure and tower operating businesses and create opportunities for bundled offerings,” Gunderman said during the fourth quarter earnings call, according to a Seeking Alpha transcript.

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A recent FierceWireless report citing Wells Fargo analyst Jennifer Fritzsche revealed that Sprint is issuing requests for proposal (RFPs) to various providers to obtain new towers, small cells and fiber connections, for backhaul.

Gunderman said that Uniti’s fiber network is well positioned to serve the overall wireless industry’s ongoing movement to 5G.

“We expect the market level trials and deployments will quickly lead the wireless carriers to a national 5G rollout, which will be similar to the pattern for 2G, 3G and 4G technology changes,” Gunderman said. “5G requires and small cells and small cells require fiber and Uniti owns 1.1 million fiber strand miles of leaseable inventory. As we enter the year and expect inventory levels to grow organically and through acquisitions throughout the coming year.”

Enhancing the fiber reach

While Uniti could not reveal any names, Uniti has seven dark fiber projects it is in the process of building out this year. The service provider said these projects will be completed this year except for the North Florida and Gulf Coast projects which are scheduled to be completed in 2019.

On the wireless side, Uniti has six major small cell projects being deployed this year, including one that will be completed by the end of the year.

To accommodate potential wireless backhaul and carrier wholesale customer deals, the service provider is going to expand its fiber facilities through a mix of its own builds and targeted acquisitions like its recently announced deal for TPx’s network.

By acquiring TPx’s fiber network, Uniti has exclusive access to use in our Uniti fiber business or right to lease 7,000 strand miles of unused fiber in five Texas metro markets that are adjacent to its Southern Unity fiber network.

Additionally, Uniti has entered into a non-exclusive marketing agreement for sub-lease after 22,000 unused fiber strands in California and Massachusetts on behalf of TPx with revenues being shared.

“The combined impact of these provisions is to add approximately 29,000 fiber strand miles with inventory for future sales and leasing,” Gunderman said. “With only 22% of the Uniti Fiber network utilized today and the unused fiber from the pending TPx deal, we now have over 1.1 million strand miles of fiber for future sales and leasing that could be monetized in all customer verticals that we actively sell.”

In tandem with expanding the fiber network reach, Uniti plans to sell bundles of towers with dark fiber.

Gunderman said since it began building towers in the United States last year, it has already received applications for second tenants and fiber backhaul orders from the anchor tenants on these towers.

“We believe we are the first in the industry to bundle traditional backhaul with owned macro towers and we expect this trend to continue,” Gunderman said. “We further believe owning fiber to our own towers enhances the value of the tower real estate including by making customers stick here, enhancing the lease up potential and providing greater optionality for treating the tower real estate as distributed architecture in the future.”

Gunderman added that “we expect the BTS tower investments could add approximately $50 million of revenue by 2022.”

Dark fiber sales rise

Wireless operators ongoing movement to 5G and small cells continues boost Uniti Fiber’s dark fiber sales, a trend that continued into the fourth quarter.

Here's a breakdown of Uniti’s key metrics:

Uniti Fiber: Uniti Fiber contributed $66.6 million of revenues and $31.5 million of Adjusted EBITDA for the fourth quarter of 2017. The unit’s net success based capital expenditures during the quarter were $­­39 million, while maintenance capital expenditures were $1 million. Uniti Fiber's sales bookings were $3.2 million proforma for Southern Light and Hunt for the full year 2017. During the fourth quarter, 38% of Uniti Fiber’s sales bookings came from the four national wireless carriers, 30% from wholesale and 32% from local enterprises, government and K- 12 school districts. Wireless sales bookings for the quarter were primarily for leasing dark fiber for tower backhaul. The service provider noted it was also seeing strong RFP activity for small cells and backhaul from all the carriers in its markets.

Driven by the unlimited data plans of the wireless carriers and 16% relating to dark fiber backhaul projects, Uniti fiber installed 0.9 million of mothly recurring revenue (MRR) and measurement of returns (MAR) during the fourth quarter of 2017 with 30% related to bandwidth upgrades. As expected during the fourth quarter, small cells installation activities were light. However, Uniti Fiber did see a pick up and permitting activity that it says set the stage for strong second half of the year for small cell installations.

Leasing segment: Leasing segment revenues were $172.2 million with adjusted EBITDA of $171.8 million for the fourth quarter of 2017. Windstream made nearly $62 million of improvements during the quarter to the network with their capital. Uniti noted that since being spun out of Windstream it had benefited from over $450 million of tenant capital improvements completed by Windstream.

Uniti Towers: Uniti Towers reported revenues of $3.4 million with slightly above breakeven adjusted EBITDA for the fourth quarter.

Churn: Total churn for the quarter was $0.5 million resulting in a 0.8% monthly churn rate driven by lit backhaul disconnects in the Dallas and Atlanta markets that were awarded to another carrier. Uniti said it expects monthly churn to increase in the first quarter as the remaining 260 disconnects are completed before returning to the 0.6% range in the following quarters.

Financials: Uniti reported fourth-quarter revenues of $246.3 million.  Net income and Adjusted EBITDA was $22.8 million and $198.0 million, respectively, for the same period. 

Looking forward to the full year of 2018, Uniti has forecast revenue to be between $999 million to $1.01 billion. The service provider said that the current outlook excludes any future acquisitions, capital market transactions, transaction costs, and the impact of acquisition of TPx’s fiber network.