How big are Zayo’s big-city ambitions?

When Zayo Bandwidthfirst came on the scene in 2007, it was described as a follower of less-travelled paths and lower-tier markets. A big pipe provider to places like Walla Walla, Washington or Chillicothe, Ohio. Two years and twelve acquisitions later, Zayo is more of a big-city carrier, and it’s not done buying its way to become even bigger.

The company’s 23-state, 19,000-mile network now reaches 129 markets, including 52 major cities. You’ll find it in Miami and Los Angeles and in multiple carrier hotels in the heart of Manhattan, including the major hub at 60 North Hudson. Its base of on-net buildings is growing by 20 to 40 per month and now totals about 2,000 – that’s nearly a quarter the size of tw telecom’s footprint but more than a third bigger than Cogent Communications’. And according to one report, Zayo even tried to buy a nationwide tier-one CLEC last year. Its ambitions have grown far beyond Walla Walla, but to what, exactly?

“We didn’t plan this,” said John Scarano, cofounder and chief operating officer. “We started exclusively in the tertiary markets [because] the assets available to purchase were -- and generally, still are -- in tertiary, tier-two-plus markets. As that progressed, we developed stronger linkage to adjacent markets, which our customers frankly love. Our network and colocation assets are generally deep and strong in the tertiary markets, which also happen to tie back to the tier-one, NFL markets, which we are doing more and more with additional acquisitions.”

Zayo’s most recent acquisition, its largest yet, took it much further into those NFL cities -- a “rare exception” to its buying patterns, Scarano said. Its purchase of FiberNet, for between $90 million and $100 million, will boost Zayo’s annual top line by about a third (or $65 million) and its workforce by about 14%. Zayo closed the deal at $11.45 per share despite a competing bid of $12.50 per share from RCN, which ultimately withdrew its bid, Scarano believes, because its offer was contingent upon securing financing, and Zayo’s was not. (Zayo later announced having secured $30 million in new debt, partly to fund the deal.)

Funding acquisitions hasn’t been a problem for Zayo, which has raised more than $300 million in equity and more than $160 million in debt. Its rapid fiber-buying moves would be reminiscent of the irrationally exuberant 90s but for the fact that the assets are much more affordable now, and the company’s founders – who were employed with fiber-buying national carriers back then – now have the benefit of hindsight. Scarano and Zayo’s cofounder and CEO, Dan Caruso, both formerly worked at Level 3 Communications and ICG Communications.

Asset prices have come up a bit since Zayo first started scooping them up, Scarano said. “The market to purchase infrastructure-based assets has firmed up a bit from where it was, say, two years ago. Whether sellers are motivated is a case-by-case situation. There appear to be two to three competitors to purchase assets as they become available, and the negotiation process is fairly balanced as a result.”

Geographically, most of FiberNet’s assets overlap with existing Zayo assets, but the acquisition fills in a particular gap in Zayo’s footprint: the Northeast. Unlike typical acquisitions, Zayo generally won’t be looking to shed redundant network assets, since they’ll be needed to accommodate future growth, Scarano said. “We do not expect to synergize the assets. The overlap adds depth and some additional redundancy.”

FiberNet also adds “quite a bit” but not “materially” to Zayo’s existing colocation business, contributing those markets in places like Miami, Los Angeles and Manhattan. And it prompted Zayo to add a fourth brand to its Bandwidth, Enterprise Networks and Onvoy Voice Services units: zColo. So what is Zayo becoming?

The Wall Street Journal recently reported that Zayo bid for some or all of XO Communications last year, an eyebrow-raising story, given XO’s relative size (the national carrier reportedly turned down offers approaching $1 billion, the WSJ said) and one that signals far bigger ambitions still for Zayo. Scarano won’t comment on that story aside from calling it “speculation.”

As for what Zayo is becoming, the term CLEC doesn’t fit, Scarano said, pointing out that the company doesn’t do much reselling of other companies’ services, it has its own network facilities and sells bandwidth, interconnection, colocation and “non-regulated, vertically oriented products,” including voice-over-IP and videoconferencing.

But it’s not done evolving. After a dozen acquisitions, Zayo hasn’t stopped shopping for assets. “We’re in discussions with several [potential sellers],” Scarano said.