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Ethernet services

Zayo Buys More Bandwidth

Zayo Group Inc. (NYSE: ZAYO), the service provider startup founded by Level 3 Communications Inc. (NYSE: LVLT) creators Dan Caruso and John Scarano, has continued its acquisition spree acquiring Wenatchee, Wash.-based Northwest Telephone, Inc. (NTI). (See Zayo Acquires NW Telephone.)

With this latest deal, Zayo now has 18,500 metro and regional fiber route miles with 1,100 on-net locations in 20 states. (See Level 3 Co-Founder Starts Zayo Bandwidth and Startup Spotlight: Zayo Bandwidth Inc.) Zayo however does not technically own much of those assets, but instead leases them through indefeasible right of use (IRU) agreements. In an IRU, Zayo can sell capacity on a fiber line as if it were its own, but since it does not have complete ownership, performing upgrades and maintenance to those lines can be a hassle.

The majority of the assets acquired in the Northwest Telephone deal are IRUs. “It’s all about serving more point to point routes at a much lower cost,” said Scarano to Light Reading.

NTI, a competitive carrier founded in 1999, was on solid financial footing, according to Zayo, but didn't have enough capital to expand its operations. Zayo, on the other hand, has enough financial backing that it can construct more regional routes and put more buildings on-net.

Still, keeping costs down is especially important when you’re constantly acquiring and integrating new companies. It’s a problem that nearly crippled Level 3. (See Level 3 Feels Integration Irritation and Level 3 Stays the Course.)

One of the ways Zayo minimizes problems with integration is that it simply hasn't integrated its data systems. It takes all the data on its networks and aggregates it onto one single system. So rather than getting each system to look and act the same, it simply audits the result collected from its disparate servers to make sure all the data shows up.

. Scarano says Zayo could grow well beyond its projected annualized revenues of over $200 million. “We could grow easily to a five or ten billion dollar company literally with what we’ve put in place. You just have to remain focused."

— Raymond McConville, Reporter, Light Reading

Kreskin 12/5/2012 | 3:39:42 PM
re: Zayo Buys More Bandwidth
These guys buy Chicken sh*t and claim they will turn it into $10 billion of chicken salad ... to bad NTI connects small towns and goes no where ... this M&A pattern has no major connectivity markets ... 4th tier towns ... best of luck Chicken Farmers.
Raymond McConville 12/5/2012 | 3:39:40 PM
re: Zayo Buys More Bandwidth well slow down for a second, they didn't say they were going to make it a $5 - $10 billion company, they just said they felt it could be done without making integration more complicated. Obviosuly they woudl have to start acquire some more significant assets to reach that size
vferrari 12/5/2012 | 3:39:36 PM
re: Zayo Buys More Bandwidth I would also add that any firm that can add metro reach and on net buildings of any significant number is not chickensh*t. It's all about reaching the customer on-net to compete as passing through access charges is not competitive as were starting to see access pricing rise again.
toes_that_twinkle 12/5/2012 | 3:39:36 PM
re: Zayo Buys More Bandwidth It seems unlikely that the NTI purchase will stand on its own or long, Zayo is likely to buy more assets up there in the Pacific Northwest. My guess is what's left of 360Networks, which is the old Touch America fiber will be next.

http://www.telecomramblings.co...
Kreskin 12/5/2012 | 3:39:35 PM
re: Zayo Buys More Bandwidth
In podunk territory there is NOT a lot of big bandwidth users ... a fact of life.

Given the Zayo IQ buying an IRU (not a real network) tells me someone else owns the fiber who probably has already picked off anything worth getting in towns of 5000 or less people.

Zay is a tier 3/4 bit player and what they have does not get them to 410 billion.

Enjoy the Zayo spin ... great copy but it is so flagrant you need to grin!
Kreskin 12/5/2012 | 3:39:35 PM
re: Zayo Buys More Bandwidth
The quote:

Scarano says Zayo could grow well beyond its projected annualized revenues of over $200 million. GÇ£We could grow easily to a five or ten billion dollar company literally with what weGÇÖve put in place. You just have to remain focused."

Sure reads like owning podunk IRU network (not fiber sheath) based on what they have today they can grow to $10 billion.
nodak 12/5/2012 | 3:39:34 PM
re: Zayo Buys More Bandwidth If there was this much money to be made in this area, one would thing Qwest (Baby Bell for the area) would be doing more to expand their presence. Instead, they are busy hemorrhaging customers to satellite and wireless.
Kreskin 12/5/2012 | 3:39:27 PM
re: Zayo Buys More Bandwidth
Excellent point ... Zayo is probably smarter then everyone else.

I have heard farmers are looking for a gig pipe to the barn ...
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