Indiana Fiber Network is one of the more dynamic and vocal of the regional fiber builders and operators begun by coalitions of independent telephone providers around the country. With us today to talk about what IFN has on the menu out in Indiana is CEO James (Jim) Turner. Jim joined IFN as its new CEO last year when Kelly Dyer, whom we interviewed here a few years earlier, decided to retire. Jim’s background is in the electric utility business, serving most recently as president of the regulated utility business at Duke Energy, which gives him a unique perspective on the evolution of the fiber sector and where regional operators might be headed from here.
TR: What drew you into the fiber sector to take the CEO role at Indiana Fiber Network?
JT: Having only limited familiarity with the telecom sector, I was not aware of IFN before being contacted by an executive recruiter about this role. But as I researched the company and learned more about the industry, it sounded like a fascinating opportunity. I was struck by the many similarities between the electric business and what happens here in the fiber business. Bandwidth has become more and more critical not only to businesses but to individuals in their personal lives. In many ways, the need for high speed bandwidth is beginning to look very much like the need for electricity in the sense that there is an expectation that it will be there 24/7/365. High speed connectivity might not be on quite the same level as food and water and electricity in terms of critical needs, but it's pretty darned close.
TR: Many have noted such similarities at a conceptual level, but how similar are they really when it comes to operations?
JT: I think there are some operational similarities in operating a network that requires “five nines” reliability. But I would also highlight key differences that, having stepped into this role last June, have been the most surprising to me. For example, with an electric utility, the utility owns the entirety of its own network. Yes, you are interconnected with other utilities, but most of the issues that happen on a network happen locally for that electric utility. If you have an outage you pretty quickly can determine the cause of the outage and resolve it. Generally speaking, there are no prolonged outages unless there's been a major storm event or something like that. In the fiber industry, there are a lot of interdependencies when it comes to issues that arise in the operation of the network. There are a lot of companies dependent upon each other, and you don't necessarily control your own destiny. Importantly, however, customers don't really care why they're having an issue; they just care that they have an issue. And so it requires us as a company to work very closely with our partners to make sure we're getting issues resolved as quickly as we can. While the electric utility industry is also quite complex, there's a level of complexity in the telecom space, and particularly the fiber network space, that I believe exceeds it.
TR: What does IFN’s infrastructure look like today, and where are you investing your capital?
JT: By the end of the year we'll be a little over 4,600 route miles of fiber here in Indiana. We have just recently completed a very significant project with a healthcare vertical, and may have an opportunity with another large healthcare vertical. Assuming both happen, these projects alone involve about 370 miles of fiber and about $30 million in capex, connecting 160 sites. We have just recently finished a core upgrade in the northern part of Indiana. And as we look to the future, we're also taking a step back to be more strategic in how we invest capital to make sure that we are enabling future growth in the business. Our company has grown very quickly, and when you grow that fast you're often going from opportunity to opportunity and building from customer to customer, but not necessarily having the luxury of stepping back to take a longer term view of how you want the network to look. So we're spending a great deal of time now having that conversation, trying to be strategic about what parts of the state we want to enable.
TR: Are there any geographies you would like to expand your network into?
JT: We're certainly open to the idea of expanding our footprint outside of Indiana, and that's something that we're starting to take a hard look at. We're not there yet. But, again, we don't want to lose focus on the growth that we think is in front of us here in Indiana with carrier wholesale and enterprise customers. And increasingly, one of the things we're taking a look at is the rural electric co-op space. The RECs are getting more active in wanting to be a fiber-to-the-home solution for their members. I think there are a lot of folks who get worried about that in the telecom industry and my sense is that the rural telecom providers and rural electric co-ops haven’t really explored the opportunity to work with each other. At IFN we're trying to see if there's a way to help enable what the RECs want to do in a way that doesn't harm our telco members. We're having conversations with the rural electrics and the rural telcos to see if there's a way to bridge the gap between them so that working together, we can identify ways to get fiber to the harder-to-serve areas in Indiana. There are parts of the state where it's just hard to get fiber to the end user. Yet if you talk to the rural electric co-ops, what they will tell you is when they have membership meetings, the number one issue they hear about is bandwidth and fiber-to-the-home. There's still an inequality between more metropolitan areas and the more rural areas of our state. Having Indiana lead in trying to forge new partnerships and get that bandwidth out to every part of the state would be pretty cool.
TR: Some of your member owners are probably also looking at FTTH, is there overlap? Are there competing efforts already or are you talking about disjointed efforts that could be unified?
JT: It's probably more disjointed efforts that we'd like to unify. There are some areas where there's overlap, and obviously those are the areas that create the more difficult obstacles. But there are areas where overlap is limited, and so helping to enable the rural co-ops in those areas is good for us and certainly good for our member owners as well. We're even beginning to ask questions such as whether we should open IFN to investments from the rural electric community. Would it make sense to have RECs become members, or partners, or owners of IFN? See, you get a guy from the electric industry running the company, and he’s just crazy enough to think that maybe these electric guys aren't as scary as you might think.
TR: Are you seeing much activity in the wireless backhaul market? Is the prospect of 5G showing up on the ground yet?
JT: We think there is going to continue to be densification of the network in our metropolitan areas and we definitely want to be part of that. 5G, at least in Indiana, is more in the conversation and drawing board stage than it is in the rollout stage at this point, but we are definitely involved in the conversations. I don't think we’ll see a lot of 5G investment in the more rural parts of the state anytime soon. But AT&T made fairly splashy announcement last fall about 5G in the Indianapolis metro area. My sense is we're very close to a lot of investment opportunities but in Indiana, at least, we're not seeing a lot of it just yet.
TR: Where do you see the best growth opportunities in today’s market?
JT: We think there's still a lot of growth ahead of us here in Indiana, and we're trying to position ourselves to seize it. We think there's an opportunity to significantly grow our carrier wholesale sales. Our EBITDA grew about 15-16% from 2016 to 2017. We grew about 15% on revenue from in that same period, and I think we can achieve a compound annual growth rate of that level over the next five years - again mostly just fueled by Indiana opportunities.
TR: Where do you see the most demand coming from?
JT: A lot of demand recently has come from the enterprise side, such as the large healthcare projects I mentioned. My sense is there's going to be a lot of growth coming from the wholesale and backhaul side. But there is also REC broadband deployment, fiber-to-the-home initiative, which is a completely untapped opportunity at this point. We don't even know what kind of demand we might see from that. We think there is a significant amount of opportunity here still to be gained. We just have to go after it.
TR: What do you see as the biggest hurdles ahead of you in pursuing that demand?
JT: I think the competition is going to get fiercer as we go forward. We’ve all seen consolidation taking place in this space, with both strategic and financial players coming in and acquiring fiber companies. What that will mean in terms of the competition is a little hard to predict. Maybe it creates some dislocation and some opportunity for us, but it could also mean we get bigger, better-funded companies competing with us from a capital standpoint. That's certainly an area that we're keeping an eye on, but right now I would say I see more opportunity in front of us than obstacles.
TR: How do you view M&A in the sector, and could IFN participate in it going forward?
JT: Well, we're certainly keeping an eye on what's happening out there, and some statewide networks such as Spirit Communications and Lumos and most recently Everstream are now beginning to be acquired or actively approached by private equity. There are frothy premiums being paid in the market, and we've been keeping our board apprised of the activity. At this point, we believe that there's greater value in remaining a stand-alone company and growing with the opportunity that's in front of us. We are interested in participating in M&A space as a buyer. But having been involved in M&A in a former life, it feels to me right now like it's more of a seller's market than it is a buyer’s market at the moment. Generally, I don’t want to be a buyer in a seller's market. Yet that doesn't mean that there aren't some opportunities out there.
TR: Thank you for talking with Telecom Ramblings!