Zayo to Accelerate Capex in 2010

Regional and metro fiber provider Zayo today previewed its capex budget for 2010.  The company has earmarked some $65M for expansion of its fiber networks.  They will finish 2009 having spent $45M while adding more than 400 on-net locations.  Hmmm, will the increased dollars turn into another 600+ on-net locations this year?  I think only TW Telecom is moving faster than that on an absolute basis, but they are more than four times larger.  Lots of these will be wireless towers in the Philadelphia region I’m sure.

One one level, this increase in capex isn’t surprising because Zayo will enter 2010 rather larger than it entered 2009, both from organic and inorganic growth.  Starting the year, Zayo’s run rate was in the neighborhood of $200M in annual revenues.  The acquisition of Fibernet Telecom Group over the summer will have added a little over $60M, and I’m guessing that organic growth has brought them closer to the $300M annual revenue threshold although they probably aren’t there quite yet.  Thus, $65M in capex corresponds to 20-25% of revenue, which is about the same rate as last year.

But on the other hand, Fibernet Telecom Group’s capex was historically below 10% of revenue – just $5.5M had been expected for 2009, and thus even accounting for Zayo’s inorganic growth Zayo’s capex budget for the rest of its business has clearly grown.  We’re seeing this all over the metro fiber sector right now.  These companies kept growing despite the recession and unlike the rest of telecom have not slowed their spending.  Now that the economy is looking a little better better and their businesses are generating even more cash, they are plowing it back into their expansion plans.

For Zayo though, one has to expect some inorganic expansion as well.  Given that the company has made more than a dozen such moves already in its short history, one might even say that it is rather quiet over there right now.  Perhaps too quiet.  Hmmmm.

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Categories: Financials · Metro fiber