Zayo: Laying foundations in Europe

18 March 2013 | Guy Matthews


Zayo’s acquisition of AboveNet has taken the company out of its North American comfort zone and given it an immediate presence in four of Europe’s most important hubs. Guy Matthews explores its likely next steps.

One of the bolder telecoms acquisitions of last year was that of fibre provider AboveNet by Colorado-based infrastructure and colocation player Zayo Group.

Through the $2.2bn deal, which completed in July, Zayo pretty much doubled in size. The merged operation has a network that now covers over 72,800 route miles, with 11,104 on-net buildings including 546 data centres, 553 carrier PoPs and 2,845 wireless towers.

Perhaps most notably of all, the AboveNet move took Zayo for the first time out of North America, where it is active in 45 states as well as Washington DC, and gave it immediate presence in four of Europe’s most important hubs - London, Paris, Frankfurt and Amsterdam.

It should be stressed that while AboveNet represents by some long distance the biggest strategic move Zayo has ever made, the company is no stranger to aggressive growth by M&A. Since it was formed in 2007, it has repeatedly made deals to purchase other, generally smaller, fibre network operators across the US – names like FiberGate, First Communications, Litecast and USCarrier. Its targets have typically been companies with a comparable focus to its own, providers of fibre infrastructure for the use of other carriers and major enterprises.

“We’ve so far acquired 23 fibre companies in the US - what we call fibre orphans,” says Stephanie Copeland, Zayo senior vice president and the person responsible for making the company’s European business work. “We were born out of acquisition, and have expanded by that means. AboveNet takes us into new Tier 1 territory, having been a largely Tier 2 operation before.”

She says the move will not alter the company’s primary commitment to serve the infrastructure side of the market: “As a company we grew up in an infrastructure world, a world where communications networks are the building blocks needed by major enterprises, carriers, media companies and so on.”

She also insists that the intended strategy for Europe does not include moving ‘up the stack’ and morphing, for example, into being an application hosting and cloud services company, as is the present path of choice for certain network operators.

“Cloud is something we enable others to provide,” she says. “Exactly what is a cloud company anyway? It means something different to everyone. To an extent that’s what we are, in as much as that’s what we help others to do. Moving further upstream is not our competence, but I guess never say never. At this point we’re focusing on the opportunity in front of us.”

The relatively unglamorous and unheralded world of infrastructure services offers, she says, plenty of scope for growth: “Infrastructure is a sustainable business, and we are a leader in it,” she explains. “A lot of carriers shy off from providing dark fibre, but we love it, and love delivering it to the largest companies in the various verticals we serve. It’s a great and highly sticky business.”

If the purchase of AboveNet represents any change of strategic emphasis, it is a likely rebalancing from being foremost a provider of enterprise services with a carrier sideline towards a far greater carrier focus. It looks as though it will be interplay with other telecoms players that Zayo is looking to Europe to help it to grow.

A logical progression

Europe represents a logical progression for Zayo, and a correct one for the stage of evolution that company is at, maintains Copeland: “We’re there because our customers wanted us to be there,” she explains.

So what’s next for Zayo’s European adventure, besides simply bedding further into the four metros it now occupies? There may, says Copeland, be medium term opportunities to extend the reach of its assets in those four cities, provided customer demand drives such a move.

"Zayo now owns assets in each of those European metros, and the profile of those assets varies from market to market,” she adds. “Zayo has a corporate history of putting capital to work on behalf of customers, adding customer locations and building onto our own network. In Europe, I expect that preference to continue where we look to find opportunities to bring Zayo's network connectivity to our European customers.”

And the possibility of adding further cities is not one she rules out either: “We’ll be looking to expand further in Europe for sure, both on the back of our customers’ networks and by further M&A activity too, no doubt,” she believes. “We’ll look at new opportunities in Europe, and we’ll pursue them aggressively. It would be contrary to our DNA not to go after further acquisitions. And we’ll look to expand organically too. We’ll keep our heads down and grow day by day. ”

Copeland says there may be mileage, for example, in targeting the Nordics next: “Norway, Sweden, Finland are all interesting to us,” she says. “There are no doubt tremendous opportunities for us in Europe, but we’ve got to be disciplined in how we address them.”

She believes that a disciplined approach to growth has characterised Zayo’s expansion so far, and that this is likely to continue. And she thinks this discipline could be the answer to success in a continent marked by wide cultural diversity and high telecoms maturity.

“Europe is competitive, but we were born into the most competitive fibre market in the world,” she explains. “We have learned there, and learned that you can’t go after everything.”

Europe’s image as a well-served bear pit of a market does not represent a problem to Zayo, says Copeland. Rather, she sees it as a gateway to potentially fruitful relationships: “I see our competition as differing deal by deal, opportunity by opportunity,” she says. “Some of our ‘rivals’ are companies we have to cooperate with as well. They are often going a lot further up the stack tan we do, which is a key difference.”

She believes that demand for fibre-based connectivity in Europe is at such a high that there is plenty of business for all: “I believe there’s plenty of room for manoeuvre in Europe, and we’re very bullish about opportunities,” as she puts it. “Just looking at London alone, we are very confident in future growth.”

London, indeed, looks central to it all. Thanks to AboveNet’s considerable investments over the years, Zayo now operates a deep fibre network across London, providing infrastructure for the city’s many carriers, media companies and financial services players. Zayo’s next goal will be to enhance its appeal to the financial services community in particular, showing that it can be the perfect partner for enabling trading across low-latency infrastructure.

By way of an early statement of intent, Zayo has this year already signed a deal with London data centre developer Volta. Zayo will provide connectivity for Volta’s new facility in the former Reuters and BT building on Great Sutton Street, which is currently being refurbished and complemented with a 33kV diverse power supply.

Copeland says Volta chose Zayo because of its low latency network connecting Basildon to the east of London to the city’s Docklands region, and heading on west to Slough.

"The financial services community has demanding requirements for capacity, latency and scalability,” she says. “Our service enables financial commodity exchanges to deliver market data and execute orders across a secure, low-latency infrastructure."

Speedy transition

At this stage in the aftermath of most major acquisitions, the newly merged operation is still looking inwards to make sense of rationalising a tangle of supply chains and billing systems. But Copeland says Zayo is well on top of that aspect and in no way inhibited from pursuing its European goals with immediate effect.

“As a company, we have liked to keep thing very simple, and we don’t for example run a lot of highly complex IT systems,” she explains. “Integration of acquisitions is a key part of what we do – something we’re well rehearsed in. That culture has driven us to keep things very flat and streamlined.”

Long-term it may well be Zayo’s plan to move from being hunter to hunted, changing from rabid acquirer to looking for a buyer itself. In AboveNet it may well have made dramatic leaps towards this goal. It appears to have gained through the move not merely additional fibre and on-net real estate but a well seasoned and well invested sales channel that gives it a lot to play for both in North America and across the pond.