Zayo says dark fiber makes up 14 percent of its wireless backhaul revenue mix

While incumbent telcos and some competitors have shied away from providing dark fiber for wireless backhaul, a Zayo executive sees interest and adoption of dark fiber continuing to ramp.

Speaking to investors during the first-quarter earnings call, Dan Caruso, co-chairman and CEO of Zayo, said that more wireless operators have been asking for dark fiber solutions.

While he did not cite any specific wireless backhaul customers, Verizon Wireless (NYSE: VZ) has reportedly been one of the main advocates for dark fiber backhaul solutions for both macrocell and small cell deployments.

"We're seeing a shift with wireless backhaul contracts to dark fiber to the tower and we're starting to see that show up as the trend over the last couple of quarters," Caruso said during the earnings call, according to a Seeking Alpha transcript. "And you see it more pronounced in the current quarter where 14 percent of our product mix for fiber to the tower is dark fiber to the tower and you see that's grown and taken on a bigger piece of the pie."

Although dark fiber has become a bigger part of its wireless backhaul revenue mix, Caruso emphasized that dark fiber is just one element of its overall solution. In addition to providing dark fiber, the service provider's mobile infrastructure division provides hub sites, mobile switching centers and central offices, including tower backhaul, small cell and distributed antenna systems (DAS) solutions.  

"When we look at what we're doing in the area of mobile infrastructure, we see ourselves doing more than just kind of dark fiber in that area," Caruso said. "We're helping our customers solve their challenges with a set of broader solutions, which in many cases are turnkey solutions or being involved putting up posts or securing rights of way."

Wireless backhaul overall has been a growing business for Zayo.

As of the end of the quarter, the service provider had 7,401 towers connected to its fiber network. Out of that mix, 5,851 are in service and 2,060 are under contract with major wireless operators.

In its fiscal third quarter, the service provider won a number of key wireless backhaul deals with major wireless operators, including projects in Dallas, Phoenix and Denver.

The Dallas and Denver builds were the biggest projects. The company added 2,000 route miles and 600 new cell towers in Dallas, while in Denver it added 450 miles of new fiber and 375 new cell towers to its network.

"The big one for this quarter were major expansion in Dallas that was driven by, primarily by wireless carrier where we are going to be building a lot of additional route miles off of the network we already have and connecting up a lot of towers, putting a lot of capital to work in the process but getting a lot of contract value at the same time," Caruso said. "And as we do this, this would be a couple of years build out we will be looking to add more and more sales on top of this network over time."

As one of the largest consolidators of fiber assets in the United States via purchasing a number of regional and large providers like IdeaTek and AboveNet, the company plans to purchase more providers to enhance its ability to respond to more dark fiber and wireless backhaul deals.

Caruso said Crown Castle's recent announcement that it would purchase Sunesys illustrates that service providers that want to compete in the wireless backhaul business need to have plenty of available fiber on hand to compete.    

"It's extraordinarily helpful, to put it mildly, to have a lot of fiber plant in order to leverage and win those type of opportunities and doing it in the way that you're really creating value for your shareholders," Caruso said. "I think one way to interpret the tower company acquisition of Sunesys is that they realize that paying quite a bit of money for some fiber plant and then leveraging it and working with the wireless carriers will create value over time, but you need that fiber plant to build upon."

For more:
- see the Seeking Alpha transcript

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