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Zayo Bursts into Western U.S. with Acquisition of 360networks

| Oct 11, 2011 | Network Access and VPN Services
| Analyst: Cindy Whelan

Event Summary

October 7, 2011 – Zayo Group has entered into a definitive agreement to acquire 360networks holdings. 360networks operates a network of more than 18,000 route miles of intercity and metro fiber in the central and western U.S. 360networks’ fiber services will be integrated into Zayo Bandwidth, while its wholesale VoIP division will be integrated with its Onvoy Voice Services business. The acquisition is subject to customary approvals and is expected to close in early 2012. Financial terms of the transaction were not disclosed.

Quick Take


Analytical Summary

• Current Perspective: Positive on Zayo Group’s plan to purchase 360networks, because the move combines companies with complementary networks and strategies focusing on secondary and rural markets. Zayo has built its company through a series of acquisitions, creating subsidiaries for metro and regional bandwidth infrastructure, colocation, fiber services and wholesale voice. 360networks brings Zayo a complementary intercity network with less than 50% overlap in metro reach and a compatible service set that includes wholesale VoIP, Ethernet, wavelength, private line and dedicated Internet access. While both carriers have a presence in major markets such as Chicago and Los Angeles, they have a strong focus on reaching Tier 2-3 markets as well.

• Vendor Importance: High to Zayo, because the company has evolved to its present form through a string of acquisitions, resulting in geographically dispersed metro networks with little interconnection between them, particularly outside the mid-Atlantic region. 360networks adds a western U.S. regional fiber network for Zayo; and connects western U.S. markets where the company already had a presence. In addition to extending its metro and regional on-net building reach, Zayo is heavily focused on delivering fiber to wireless cell towers. The addition of 360networks’ 18,500 route mile fiber network lets Zayo reach more cell towers in the western half of the U.S.

• Market Impact: Moderate on the market for wholesale data services, because the companies’ service sets are largely complementary: Zayo has a strong metro/regional fiber reach, while 360networks’ specialty is long-haul optical transport services. The companies diverge in wholesale VoIP, however. 360networks has developed its VoIP offer over the last several years, while Zayo’s Onvoy Voice Service subsidiary has been largely centered on traditional voice. The addition of 360networks' wholesale VoIP provides Zayo with an important component to its wholesale voice offers, but the carrier has provided little insight about plans and investment in developing and expanding its wholesale VoIP portfolio.


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Zayo Group to Acquire 360Networks

LOUISVILLE, CO and Seattle, WA – October 7, 2011– Zayo Group executed a definitive agreement to acquire Seattle-based 360networks holdings (USA) inc. (“360networks”), a leading provider of fiber network and telecom services. The acquisition combines highly complementary assets – Zayo’s deep metropolitan fiber networks across 60 US metropolitan markets and 360networks’ unique intercity fiber network spanning the central and western United States. 360networks will be the largest of the 17 acquisitions made by Zayo since its inception in 2007.

“The combination with 360networks marks a new chapter for Zayo, one in which we emerge as a national provider of Bandwidth Infrastructure service,” said Dan Caruso, President and CEO of Zayo Group. “The near doubling of the network allows us to provide a greater range of solutions, both in terms of markets served and ability to interconnect services across the markets.”

360networks operates over 18,500 route miles of intercity and metro fiber network across 22 states and British Columbia. 360networks’ intercity network interconnects over 70 markets across the central and western United States, including 24 Zayo fiber markets and a number of new markets such as Albuquerque, Bismarck, Des Moines, San Diego, San Francisco and Tucson. In addition to its intercity network, 360networks operates over 800 route miles of metropolitan fiber networks across 25 markets, including Seattle, Denver, Colorado Springs, Omaha, Sacramento, and Salt Lake City. The resulting combined fiber network will total over 42,000 route miles and nearly two million fiber miles.

360networks’ primary product and customer set mirrors Zayo’s focus on providing Bandwidth Infrastructure services (including lit and dark fiber solutions) to large bandwidth consumers including wireless and wireline carriers, cable providers, large enterprise and public sector customers. 360networks is also a leading provider of wholesale voice-over-IP (“VOIP”) services. Zayo Group, LLC previously spun-off its voice operations into a separate entity, Onvoy Voice Services (“OVS”), in order to maintain focus on its Bandwidth Infrastructure business. Zayo plans to spin-off the 360networks VOIP operations to OVS, increasing its coverage and scale as a national voice services provider.

“The employees of 360networks are doing a fantastic job in growing their business,” Caruso added. “They will be an integral part of the combined company.” ”We view this combination as creating a great opportunity for customers, employees and shareholders,” said Chris Mueller, 360networks’ Vice Chairman. “The assets and talent of these two companies will create a unique capability to meet the growing needs of bandwidth intensive customers.” The transaction, subject to customary approvals, is expected to close by early 2012. The financial terms have not been disclosed.