It’s been almost three years now since Lumos Networks split off from nTelos, taking its fiber business on an independent path. In the time since, they have been expanding their reach both into new geographies and to new opportunities within their existing footprint. With us to offer an update on the company’s expansion projects and overall outlook is CEO Tim Biltz, who was also featured here in the summer of 2013.
TR: When we last talked, Lumos was just getting rolling with fiber to the cell, how is that going for you?
TB: Our current financial guidance is that we will end this year with 825 unique cell sites on our network, averaging about 1.3 tenants per tower. This means we will have about 1,075 FTTC installed connections at the end of 2014. At the end of the 2nd quarter we had over 1,250 individual connections signed with a long-term target of about 2,250.
In late September, we put out a press release indicated that we had 1,025 unique sites and 1,350 individual FTTC connections under contract. So we’re well on our way to scaling that business. We also gave guidance for 2014 that we would sign 500-700 new FTTC connections to the network, with the majority of those being unique towers. As a reminder, in August of 2013, we raised our long-term target for unique FTTC towers connections from 1,000 to 1,500 and we expect to reach that target in the end-of-2016 or early-2017 time frame. Our long-term target for annualized FTTC revenue is $70 million.
TR: Do you think the emerging small cell opportunity could give you reason to increase that target at some point?
TB: Each carrier has a little different definition for small cells today. What we consider a unique tower today is what the industry would call a macro site. We do have one ‘small cell’ site that is actually one of our largest bandwidth sites, as it’s a stadium. But it’s really a macro site with a small diameter whose economics don’t match what the small cell industry may evolve to. I do think there’s a bigger small cell opportunity beyond our guidance for 1,500 unique FTTC towers in our footprint. But before we raise the target, throughout 2015 we will get a better feel for some of our newer and more urban markets – Richmond and Pittsburgh.
TR: You have also been putting together an IP backbone specialized for wireless backhaul, what does that do for you?
TB: In the press release I mentioned earlier, we indicated that Project Ark is now operational and we expect to begin routing FTTC traffic onto this network in the early part of the fourth quarter. Project Ark is one of the more exciting projects we’ve had. I think it’s been in part a result of our success in the Fiber-to-the-Cell space, which required us to think about Ark in the first place. But once we conceived it, designed it, and introduced it to our customers, it actually propelled our business. It’s a fully independent core IP backbone that is separate from our enterprise network. It is geo-diverse, with four main core locations, each with geo-diversity so that’s eight locations in all. It has all 100G waves on our own fiber connecting those facilities. It’s a layer 2 network, so it has fast rerouting, with a lot of very robust capacity that will let us take the most sensitive traffic and most important segment of our business and provide it with its own core. It allows us to provide incredible levels of service redundancy and reliability to our wireless carriers customers. And it also relieves substantial capacity onto our enterprise network. Our plan is to migrate all of our FTC traffic onto this network by the end of next year.
TR: Lumos has also been talking about building out to more data centers within its current footprint, with a goal of 100. That seems like a no-brainer, why weren’t they on-net already?
TB: I think it’s just indicative of where the company was a few years ago and how the marketplace has evolved. We know we are underweighted in datacenter connectivity, but we are making great progress, picking our partners well, and are moving at a nice deliberate pace. Currently, we are connected to 15 commercial data centers, including some marquee names like Peak 10, QTS, Equinix, Terremark and Iron Mountain. Our guidance is to end 2014 with 20 connected commercial data centers. Right now, connectivity is our primary focus. The 100 we’ve identified and are targeting are commercial data centers, we certainly have a lot more private data centers that we already carry customer traffic to. But the 100 that we are targeting are pretty important ones, most being in the Ashburn area.
TR: Do you have any new fiber projects in Virginia in the works?
TB: We will be opening up a long-haul route from Richmond to Ashburn that will be live in the fourth quarter. They say anyone that’s been in Richmond wants to invade the north and so will we. We’ll be making a lot more investments in northern Virginia. We built our the 53 mile Charlottesville to Richmond route on our own with very dense fiber, but to Ashburn we are partnering with another provider and taking fiber on that via an IRU. Then we are building our own pieces off of that route to certain data centers, Enterprises, cell sites and industrial parks. That’s part of our strategy; we’ve never felt compelled to own every piece of every long-haul part of our fiber network. Our focus is owning the local network and having our customers on-net. But where there are positions where we can have unique long-haul route we’ll build our own there too. It’s all a matter of capital efficiency.
TR: Last time we talked, Lumos’s next expansion project involved taking better advantage of the former Allegheny fiber assets up in Pennsylvania. How is that going?
TB: We are happy to announce the opening of a new office in South Point, with people moving this week and the grand opening on October 22. We’re also putting in a fully redundant, live NOC there in Pittsburgh that is staffing up now. We have built what we call the jump start ring, where we took the longhaul network we pulled down from Allegheny and made a number of exit ramps and a bypass of Pittsburgh for our transport business so traffic doesn’t have to go downtown. We have a number of enterprise customers now in and around the South Point area and moving north into the city. We have not yet started construction on the larger metro ring, but we are building spurs off the jump start ring. It’s a deliberate pace, but Pittsburgh is a very important part of our business.
On another part of our network in the north, we have closed the ‘horseshoe’, or where our fiber did not connect from Harrisburg into Pittsburgh. We have been using purchased waves there but our fiber goes live this quarter.
TR: Your enterprise data business took a hit a few quarters ago, what happened there and how are you aiming for the next stage of growth?
TB: We still have a lot of the old TDM business and some repricing had to be done there. I think we’re through most of that, and the TDM business represents less than 15% of our enterprise business now. Our annual Enterprise revenue is slightly north of $40 million. We’ve also started a renewal program, and right now we’re on a pace through the first three quarters of 2014 to renew about 15% of our Enterprise book, with an average contract length of over 3 years. We believe that we can accelerate the And we have a focus on expanding our enterprise direct sales to a very targeted group of customers. We don’t try to be all things to all people. We want to build very customized solutions to customers who can use our network more uniquely than our competitors can match, such as universities, hospitals, governments, and mid-sized businesses. That direct sales force is picking up steam and we’re very excited at what we see in the pipeline.
But even more important to our enterprise business is the expanded partnership program we started a year ago with large national providers. We’ve signed about 30 MSAs and have begun to offer type 2 services via them, and these are usually national accounts that we would never sell ourselves. We expect that business by this time next year to represent 50% of our enterprise sales, so it’s a significant distribution channel and an opportunity.
TR: How do you view the M&A opportunities out there right now?
TB: Obviously you focus on what you can build because you can control that, and taking advantage of the organic growth opportunities out there and leveraging our network assets has us pretty busy. I do think that inorganic growth will play a role in this company’s future, and as an organization we are now in a position to do it if the opportunity comes up. If we do it we want to do it regionally, but we don’t feel as if we have to and we’re not going to chase things. We’re open to look and to talk, but it’s not our driving strategy.
TR: Thank you for talking with Telecom Ramblings!
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