After a year of letting them languish a bit, I have now updated Telecom Ramblings’ competitive trends graphs with current data. Today I’m going to look at what trends we might pull out of the EBITDA margins from competitive network operators across the spectrum:
Adjusted EBITDA Margin for Competitive Network Operators
The networks shown on this plot have changed significantly over the years due to consolidation, of course. But what has always struck me is how rarely the lines cross — changing one’s margin profile is quite difficult. So what can we see about the last year or two when taking this longer view?
Zayo has clearly found its level. After rising almost linearly from 2009 through 2013, adjusted EBITDA margins of just under 60% seem to be their sweet spot, punctuated by the not-so-occasional M&A and integration. The Allstream and Viatel deals seem likely to create a new dip in 2016, but we can be pretty sure where they’ll be moving back toward at this point.
The biggest shift this year came over at Windstream, as their margins dropped from the mid 30%s to the mid 20%s between Q1 and Q2. That of course is not an operational phenomenon, but simply reflects the REIT transaction. Windstream spun off a piece of its EBITDA along with a chunk of debt to CS&L, and now pays rent on assets it still operates. That new reality created a shift in their margin profile we can see quite clearly.
Several providers have seen very steady rises in margin over the past year or two, almost unnervingly steady considering the M&A activity we’ve watched them do. Level 3’s tw telecom acquisition and integration efforts have born enough fruit to get them above 30% for the first time, but so smoothly you can’t see it. GTT has made even bigger acquisitions relative to their size with only a slight dip in their upward trend to be seen at the end of last year. And after hitting bottom in mid-2014, EarthLink’s margins have clearly been on the rise once again after a shift in operational focus and a new CEO at the helm.
And then there’s Sprint’s wireline business, who I’m just thankful managed to keep EBITDA margins positive so far. Otherwise I’d have to come up with a new plot format…
New to this chart is Consolidated Communications, for whom I am still collecting more data. They acquired Enventis last year and Surewest a while before that, giving them a hybrid CLEC/ILEC, business/consumer feel a bit like Windstream. No longer supplying data lately have been Integra, which stopped posting limited public quarterly numbers after Kevin O’Hara stepped down, and Colt, which went private recently under the auspices of longtime controlling shareholder Fidelity. Historical data from companies whose networks have been consolidated over the years can be turned on by clicking the checkboxes on the left.
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