TW Telecom (NASDAQ:TWTC, news, filings) picked up an important state government contract expansion today. The State of Texas has awarded the fiber operator a five year contract under which it will supply a comprehensive suite of network solutions to all state agencies and departments. Texas and its capitol Austin have long been tw telecom strongholds, and the state government was already a substantial customer.
For the past several quarters, tw telecom has been greatly accelerating the rate at which it adds buildings to its network to more than five hundred per quarter, or a half dozen a day. That’s an amazing rate, yet thus far we have not seen it lead to an increase in their revenue growth rate or in their EBITDA margins. One or the other seems inevitable, else their capex growth wouldn’t make sense given their generally conservative style.
Perhaps the change in their stance is in response to a change in the economics. Greater bandwidth demand is making it economical to bring a much wider variety of enterprise buildings on-net, and tw telecom simply responding to that new situation within its existing footprint and customer profile. They have long had a substantial amount of leased circuits, and are probably bringing a bunch of those on-net – which would probably show up in margin growth in a quarter or two. We shall see.
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