Broadband Communities

OCT 2012

BROADBAND COMMUNITIES is the leading source of information on digital and broadband technologies for buildings and communities. Our editorial aims to accelerate the deployment of Fiber-To-The-Home and Fiber-To-The-Premises.

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B7+(B%$1':,'7+B+$:.B Broadband: M/C Partners Gets It This Boston-based venture firm has a better understanding of telecom than the Wall Street giants do. By Steven S. Ross ■ Broadband Communities A s the last of the broadband stim- ulus funds are spent, announce- ments of new fiber-to-the-home builds have slowed considerably. Debt or lease financing, when it is available, typ- ically carries 12 percent interest or more for the private sector and 7 percent or more for municipalities. Equity financ- ing is almost unheard-of, especially for building new networks to end users. Ten there's M/C Partners. Tis Boston-based firm specializes in early- stage financing of companies in com- munications, technology and media and is typically the lead investor in first- round offerings, at $5 million to $50 million equity a pop with a $30 million to $40 million sweet spot. Te firm has about $1.3 billion under management. M/C Partners sees the greatest profit po- tential right now in middle-mile fiber, especially to serve cellular needs, but is absolutely aware of FTTH potential. Managing Partner Gillis Cashman leads the broadband infrastructure and services portfolio. M/C Partners takes an active role in its investments, so Cashman serves as chairman of Baja Broadband and sits on the boards of Zayo Group, Corelink Data Centers, CSDVRS, GTS Central Europe and PlumChoice. Previ- ous board seats include ICG Holdings (sold to Level 3), City Signal Commu- nications (sold to Cavalier Telephone), Elantic Networks (merged with Cavalier Telephone), FDN Networks (merged with NuVox Communications) and Cavalier Telephone (sold to Paetec). He has also held observer seats at NuVox Communications (sold to Windstream) and Telution (sold to CSG). Normally, when I speak to finan- ciers, they bellyache about regulatory risks in telecom, the scarcity of good managers and declining revenue per subscriber. Not Cashman. "Every guy says the price per bit is go- ing to commodity and that there is lots of fiber in the ground," he says. "But the real metric is 'What's the capital I spend to get a dollar of new revenue?'" He says M/C Partners helps sharpen manage- ment with its hands-on approach. He also says the industry's needs change fast, and not all potential inves- tors keep up. "Colocation has [histori- cally] been located to maximize power efficiency, but when it comes to applica- tion performance, you need to be more distributed.… People are uploading with their systems, [and] traffic patterns are changing dramatically.… Also, [there is faster and more ubiquitous] networking within the home.… It all depends on geography, and management is critical. A lot of teams I've interacted with seem like they are caught in a time warp. Tat has been a big issue." Cashman stresses that most of his firm's recent fiber investment plays have been providers of fiber backhaul to cell towers. But that may change, although cellular growth has been spectacular. "We see it as in the very early innings as telecoms manage growth in demand, both wireless and wireline," he says. "Te last deal we did on the wireline side was in 2004. But there needs to be a complete upgrade of the infrastructure. Missing in the discussion is the role of the network. For seven years after 1999 there was no investment, despite huge growth in demand by end users." WHY NETWORK SPEEDS INCREASE "Te network has to be as fast as the pro- cessor. [Tat's why we have] 2.5 [Gbps] to the [cell] tower now rather than 10 [Mbps] three years ago," he says. "We are spending more time with the middle mile, too. You need the faster connection for interconnects. Te middle-mile guys can't get to your cus- tomer except through you [the last-mile provider]. It is a local business." He adds that networks have to adapt to the new locations and capacity of data centers for better cloud service. Cashman notes that the financial and health care verticals are leaders in pushing for more bandwidth and less latency, but that even for Google and Facebook, "latency is a huge issue." He adds, "Two of our [portfolio] companies have been providing [fiber] network for DIRECTV. In general, I see satellite-based transport as a shrink- ing market. Comcast is also consolidat- ing headends and favors fiber transport." Check out the company's website at mcpartners.com. Although the firm itself likes equity deals, some investors who have money there might be inter- ested in side deals involving other forms of financing. Y About the Author Contact the Bandwidth Hawk at steve@bbcmag.com. 12 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | OCTOBER 2012

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