Spotlight on: M/C Venture Partners: Firm is seeing fiber investments pay off

M/C Venture Partners has been betting on increased fiber needs in the past few years, buying distressed assets at lower prices when supply ran ahead of demand. Today, the VC firm is seeing that strategy pay off as wireless, cable and telecom companies need the fat pipes to carry content across their networks, said Gillis Cashman, a general partner at the Boston-based company.
Earlier this month, M/C Venture Partners announced that competitive local exchange carrier Cavalier Telephone Inc. was being sold to PAETEC in an all-cash purchase for $460 million. Earlier in the year, M/C sold Nuvox, another CLEC, to Windstream for $683 million. The company also owns Zayo Bandwidth and Lightower, which also have fiber assets. But M/C Venture Partners’ media/telecom plays are fairly broad: the company has investments in MetroPCS Communications Inc., Revol, Mobi PCS and fixed-wireless operator Airband in the United States; Open Mobile in Puerto Rico; Public Mobile in Canada, which won AWS spectrum at auction; as well as mobile e-mail provider Seven Networks, along with cable and telecom properties.
M/C Ventures was the lead investor in Cavalier in 1999, investing $70 million in the start-up company. During the telecom downturn in 2004, Cavalier picked up Dominion Telecom’s fiber-optics networks for $11 million. Those networks cost Dominion $1.3 billion to build.
“We’ve been investing in fiber close to 17 years,” said Cashman. The company has seen a huge uptick in demand from wireless operators to get fiber to towers in the last 12 to 18 months. “Carriers used to say ‘Price out 10 megabits,’ and then it was ‘I need pricing for 100.’ And today, it’s ‘I need 100 megabits to the tower and I want pricing for 400 megabits.’ It’s changed that dramatically and that quickly.”
As demand continues to grow at the edge of the network, Cashman said M/C’s fiber companies are seeing between 25% and 30% year-over-year revenue growth. “In the wireless backhaul space, demand got way ahead of supply.” Along with wireless, the enterprise is a growth driver as cloud computing gains traction, and people are consuming more content in new ways, which also is driving growth. “On the residential side, there is a huge surge of people watching video online. We’ve grown subscribers by 5%, but our bandwidth requirement at the company has grown by a factor of four. Our existing subscribers are using four times as much bandwidth as they were six to nine months ago.”
When asked whether M/C Venture Partners would take either Zayo or Lightower public, Cashman said that while the companies are big enough to have initial public offerings, the public markets don’t value the assets as much as they do in private transactions. “The public market doesn’t yet understand the opportunity set.”