Zayo and the small cell business case

Fiber provider Zayo Group has been putting substantial resources into investment in mobile infrastructure, particularly dark fiber, as it expands its network. The company’s executives offered a number of insights on the small cell business case from a backhaul provider’s perspective on its most recent quarterly call. The following remarks are from Zayo’s Chairman and CEO Dan Caruso, during the analyst Q&A portion of the call.

“When we look at these projects, we’re not just looking at our upsell opportunities with additional wireless carriers. We look at many other opportunities as well. The first one, actually, starts with the anchor tenant itself. The anchor tenant, when you sign these deals, your expectation is that you’re going to get more business from them as these networks are being built out. More business because they’re not necessarily giving you their full demand set they want, and more business because they’re going to have more towers that are inside the reach of that network you’re building out. And then, they’re going to have small cell demand as well.
“So your first upsell opportunity is with your anchor tenant. The next upsell opportunities are with the other wireless carriers who operate in that market. And then, the third opportunity is a whole bunch of other companies that exist within that area. When you build out these fiber networks, you’re passing just lots and lots and lots of buildings, commercial buildings, residential buildings and even neighborhoods themselves. So – and we think over time, and we’re already seeing evidence of this – the networks we’re putting in place become ideal platforms. It might be school districts; it might hospitals; and it might be multidwelling units and certainly other commercial buildings. Data centers are nearby. Those are all addressable markets as these networks get built out.
“So we look at that. And then, we look at the geography itself that we’re serving out. You’ll notice a lot of our activity is in Texas. Our Texas office is also one of the fastest-growing markets, not just in general, but also for technology companies. So that factors into our decision as well.
“Second tenants are when you think of mobile infrastructure vs. towers. … Our opportunity for [a] second tenant involves a lot more customers than just other wireless carriers and involves not just selling on the same tower, it’s selling on the same fiber because what we’re investing in is the fiber network that goes in the ground. So when we think of second tenants, we think of other revenue streams that leverage that capital that we invested in building out that fiber. So a lot of the success we’ve been having over the last few years has been as those networks have developed, we’ve put them in place, we sell additional customers on top of it, quite often additional wireless carriers. Colorado, our backyard, is a great example. We have all of the top four wireless carriers in one way or another leveraging our broad tower footprint, a footprint that was very small five years ago, now it’s very extensive and is leveraged by each of the wireless carriers. … If you look at tenants per tower, by that metric it might still look small in Colorado. But all of those customers are leveraging [the] capital investment we put in place, as we made the anchor tenant decisions to build out Colorado.
“Small cells are interesting because it’s live, it’s all over the map right now. There is a little bit of a stage where people are getting up learning curves, both those who were bidding on projects and implementing them; investors, who want it back, those kind of companies, as well as the carriers who are trying to figure how to negotiate the contracts and ask for prices. So we’ve seen some deals in pricing out there that frankly we scratch our head at. We like a lot of things that are new and involve a lot of hype, there’s probably going to be a few people who lose a lot of money doing things that they regret having done in the past.
“So part of what – as we kind of navigate our way through that – we have to remind ourselves: Where do we get heavily engaged; how do we price a deal; what’s our view about what happened after you sign the deal? And in some cases, if there is overly aggressive, overly ambitious competition, sometimes they’re going to learn the hard way by winning a deal and maybe they got a little bit overambitious. So it’ll be interesting to watch this over the next two years, three years, four years.”
Want to get more insights on the small cell business case? Register for RCR Wireless’ upcoming webinar on Scalability, ROI and the Business Case for Small Cells.