Ziply Fiber, a residential broadband provider in the Pacific Northwest of the United States, has one of the largest ongoing fiber build plans amongst telcos and fiber-to-the-home (FTTH) overbuilders in the country. Specifically, Ziply Fiber (formerly Frontier Communications’ Northwest operations), plans to build/upgrade 900k premises to fiber, bringing its network footprint to 1.4 million fiber passings by 2024.

Below Dgtl Infra reviews the original corporate carve-out transaction from Frontier Communications, which led to the creation of Ziply Fiber. Following this background, we analyze Ziply Fiber’s latest available build-out plans, passings, subscriber, and network data to understand how the company is positioning itself for 2022 and beyond.

History – Frontier Sells Northwest Operations to Searchlight

In May 2020, Searchlight Capital Partners alongside co-investors, via the entity Northwest Fiber, LLC, acquired the Northwest operations and assets of Frontier Communications. Subsequently, the new company began operating as Ziply Fiber.

Frontier’s network passed 1.7 million residential and business locations, across four states, namely Washington, Oregon, Idaho, and Montana. Of this total, only ~500k or 30% were fiber-to-the-premises (FTTP) passings.

In terms of subscribers, Frontier served 350k+ residential and commercial customers, providing 150k fiber broadband, 150k copper broadband, and 35k video connections. Of these ~300k broadband connections, 270k (90%+) were residential, while 25k (<10%) were commercial subscribers.

Overall, the business had 315k+ access lines, with penetration averaging <20%, across its four-state footprint. Note that Frontier’s fiber broadband penetration averaged <10% across these states.

StatePassingsAccess LinesPenetration
Washington956k159k17%
Oregon519k102k20%
Idaho178k50k28%
Montana11k4.8k43%
Total1.7m315.5k19%

Transaction Overview

Frontier Communications sold its Northwest business at an enterprise value of $1.35bn. At the time, the unit generated revenue of $619m and adjusted EBITDA of $272m. Therefore, the business was valued by the Searchlight-led consortium at 5.0x EBITDA.

Ownership

Below is the Searchlight-led consortium’s post-completion ownership structure of Ziply Fiber (Northwest Fiber, LLC):

  • Searchlight Capital II: 23% equity ownership
  • WaveDivision Capital VII: 10% equity ownership
  • PSP Investments: 30% equity ownership
  • British Columbia Investment Management Corporation (BCI): 18% equity ownership
  • Canada Pension Plan Investment Board (CPP Investments): 19% equity ownership

Management

Ziply Fiber is led by Harold Zeitz as CEO, who was formerly the President of Wave Broadband, which is now a division of Astound Broadband. Additionally, Steve Weed, the founder of WaveDivision Capital and the former CEO of Wave Broadband, is Executive Chairman of Ziply Fiber.

Business Plan – Ziply Fiber Expands Broadband Network

Under the Searchlight-led consortium’s ownership, an incremental $500m is being invested in Ziply Fiber’s network and service improvements. This investment forms part of a total ~$2.0bn commitment, which includes the initial $1.35bn purchase price paid to Frontier Communications.

Ziply Fiber plans to grow its overall passings and migrate its existing copper passings to fiber, bringing fiber to more communities in the Pacific Northwest. As of October 2021, the company has either completed or begun fiber deployments in 57 markets across Washington, Oregon, Idaho, and Montana.

Overall, the Searchlight-led consortium intends to guide Ziply Fiber to steady fiber penetration growth through its pre-funded build-out activity, improve upon Frontier’s previously undermanaged legacy fiber operations, and raise the company’s low ARPUs.

Initial Plans

Initially, Ziply Fiber planned to build-out fiber to 80% of its 1.7 million residential and business locations, equivalent to 1.4 million fiber passings, by 2024. Therefore, Ziply Fiber is targeting an incremental 900k passings to its initial 500k-passings fiber network.

As such, the incremental $500m investment for 900k fiber passings implies that Ziply Fiber’s network build has a cost of ~$555 per passing, which is relatively low.

Of Ziply Fiber’s 900k incremental fiber passings, ~330k premises, or 20% of all premises, are located within 200 feet of the company’s existing fiber network. Therefore, Ziply Fiber can deliver fiber-to-the-premises (FTTP) upgrades to these locations with relatively short payback periods.

Current Passings

As of June 2021, Ziply Fiber’s network reached 616k fiber passings, implying a ~36% build-out penetration, up from 30% penetration at the time of the company’s carve-out in May 2020.

StateFiber Passings
Washington291k
Oregon298k
Idaho24k
Montana3k
Total616k

Furthermore, by year-end 2021, Ziply Fiber anticipates passing 40% to 50% of its footprint with fiber. Finally, the company’s target is to pass nearly 85% of its 1.7 million residential and business locations in the “next few years”.

Subscribers

As of June 2021, Ziply Fiber had nearly 500k subscribers, comprising ~300k internet customers and ~191k phone customers. In terms of mix, the breakdown of these subscribers by residential and commercial was as follows:

  • Internet: 270k residential and 30k commercial customers
  • Phone: 167k residential and 24k commercial customers

Physical Network

Ziply Fiber’s network is comprised of 42.9k owned route miles, including 8.9k fiber miles and 34.0k copper miles, as well as 130 network hub locations. Additionally, the company’s physical network locations include 208 central offices and over 1.1k remote site units.

Enterprise Fiber – Commercial Connectivity, Transport Solutions

Ziply Fiber provides enterprise fiber services to small- and medium-sized businesses (SMBs), larger enterprises, carriers, and data centers. Specifically, these enterprise fiber services include ethernet, dedicated internet access, wholesale IP, private lines, wavelength, and SONET (Synchronous Optical Network).

As shown above, Ziply Fiber offers its enterprise fiber customers 20k route miles of owned and leased fiber connections across its Pacific Northwest footprint. Furthermore, the company plans to grow this network to 50k route miles of fiber over the next 3 years.

Network Example

Presently, Ziply Fiber is the only regional provider offering high-capacity wavelength services between Seattle, Washington and Portland, Oregon, with full diversity on two separate direct routes.

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