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Summary

Serial network consolidator and dark fiber specialist Zayo has acquired European carrier Viatel for about $100m from Irish telecoms group Digiweb. This move significantly extends Zayo’s footprint, bringing its combined US and European network reach to nearly 150,000km, most of which was purchased for significantly less than it cost to build. Zayo’s low-cost high-capacity services will challenge many traditional players in Europe.

Fiber specialist banks on growing demand for basic services

In just eight years since its creation, Zayo has made at least 35 acquisitions of fiber networks, data centers, and co-location facilities. Its initial growth was focused in North America, before more recently expanding into Europe through the purchases of AboveNet in 2012 and UK-based Geo Networks and French Neo Telecoms in 2014.

Established in 1991, Viatel invested about $1.5bn in its 8,500km network, which now reaches 35 major cities across eight Western European countries. However, Viatel was one of the first telcos to file for bankruptcy protection when it collapsed in May 2001 with debts of over $2bn. After being rescued by its debtors, the company was purchased in 2013 by Irish telecoms group Digiweb for an undisclosed sum.

Having paid less than 7% of Viatel’s total capital investment for its latest acquisition, Zayo is able deliver more low-cost services that will challenge traditional players in Europe. We expect that Zayo will swiftly incorporate Viatel’s fiber infrastructure into its existing network, which it uses to sell a mix of physical infrastructure, connectivity, and cloud services to enterprises, governmental bodies, fixed and mobile operators, and other telecoms intermediaries.

Zayo is banking on the proliferation of wireless cell sites, together with data center connectivity services, to increase demand for its dark fiber and backhaul services. In the company’s fourth-quarter results call CEO Dan Caruso stated that roughly 38% of the group’s nearly $1.5bn annual revenues and 46% of its EBITDA were earned from these services.

Ovum agrees that demand for these types of high-capacity connectivity will continue to grow fast, fueled by increasing consumption of content on mobile devices. While traditional communications service providers’ strategies focus on providing higher-value services, such as Ethernet, to satisfy these needs, Zayo is carving out a significant slice of the market by supplying very basic communications services to technically capable customer segments.

Appendix

Further reading

Communications Provider Revenue & Capex Highlights: 2Q15, TE0006-001132 (October 2015)

Dark Fiber: A Complicated Opportunity for a Simple Service, TE0012-000545 (June 2015)

“The Data Center Interconnect market is booming: adapt or die,” TE0006-001078 (June 2015)

The Importance of Owning Infrastructure to Wholesale Service Providers, TE0012-000538 (April 2015)

Author

David James, Practice Leader, Wholesale Telecoms

david.james@ovum.com

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