Specialist
Former C-level executive at Zayo Group LLC
Agenda
- Operating environment for fibre vendors such as Zayo (NYSE: ZAYO), Crown Castle (NYSE: CCI), CenturyLink (NYSE: CTL) and others – update on supply and demand dynamics
- Sizing growth opportunities across 5G and data centre markets
- Competitive dynamics across key geographies
- Build-out costs, IRR, pricing and churn
- Outlook for 2020 and beyond – fibre consolidation, dark fibre demand and winners and losers
Questions
1.
What is your industry-wide overview for fibre-based communications, which key trends or drivers are impacting the space most right now?
2.
How are you finding a balance for the supply and demand? From a high-level view, would you say it’s pretty even or perhaps over supplied? How does it flow down to some of the key markets and what can cause the extreme side of the spectrum, either some of the most over-supplied markets or some of the tightest ones?
3.
Do you have any key markets to highlight, do any sit on either side of being extremely over supplied or extremely tight in terms of demand? What drives the disparity there?
4.
You bring up the Sprint-T-Mobile news, is there any negative flip side to be wary about, either for rationalisations of the network or otherwise? Could it put a pinch on anyone who is over-indexed towards carriers as a percentage of business, for example?
5.
You mentioned pricing with regards to some of the more competitive markets, such as New York and Atlanta. How are the assessing price compression over the past few years? What can you expect on an annual basis for metro vs long haul? Maybe differentiate by customer type – presumably web-scale and content providers, such as Facebook, are a little bit more aggressive? How does price compression differ, where is it more profound?
6.
Based on some of the things discussed so far, from an organic growth perspective am I right to assume we’re talking small cell and dark fibre might be double digit or hovering around that threshold? Whereas long haul is coming in high single, maybe starting to hover towards the mid-single? Metros would be below that?
7.
Thinking about the market evolution and movements, how are you assessing the way fibre carriers are positioned? Are any losing market share, for example, or would you point towards any growth below market levels being more sales execution-oriented? Is everyone from a fibre carrier perspective just continuing to gain at the expense of LECs [local exchange carriers], MSOs [multiple-system operators], etc?
8.
What are some of the challenges associated with the fibre sale, and the ability to fill in the additional tenants to improve the IRR? You mentioned how it’s not just one business model but rather a lot of variants. How difficult is it to retain a strong sales team in this industry – would it be a driver of consolidation, for example, because not everyone can have success from a sales perspective? Zayo is a good example of sales execution issues of late – what are the challenges there? How fixable are things in terms of improving tenure or productivity from a sales perspective?
9.
How would you describe a typical productivity ramp from a sales executive perspective? Is it a 12-18-month process? Presumably a local focus would point more towards a regional general manager structure where it is more acceptable to have lower quotas instead of fishing for huge deals?
10.
How are you assessing new fibre builds – how is it trending and how does it flow into the sales team’s ability to generate attractive IRRs? How do the return dynamics differ for a speculative build vs an over-build or a near-net opportunity, where the payback is likely shortened and more positive IRR? What are the disparities from a return perspective and where might things skew with forthcoming builds?
11.
If the Crowns of the world pitch yield for small cell deals because it’s in most cases a negative IRR, what is driving pricing to be so aggressive there? Do you expect carriers to provide more upfront so the economics make a little more sense – if this doesn’t happen in 2020, is it a longer-term improvement?
12.
You made a point earlier about how unit costs are coming down – similarly to what you’ve been saying about price compression. If construction and labour can be anywhere up to 80% of total build cost, would this be a margin compression expectation over the next few years industry-wide – especially with the potential associated wage inflation? What levers exist to either maintain or expand margins across any parts of the business?
13.
Do you think capital intensity ever comes down for fibre suppliers? Is there a good rule of thumb to consider, such as maintenance CAPEX being a percentage of revenue including the potential impact from a natural churn in the business? What does that look like and is it stable?
