Building the Networks Behind the Bandwidth Boom: M|C Partners’ Third Decade (2005–2015)

By Gillis Cashman and Brian Clark

The fiber boom in the late 1990s was overwhelmingly concentrated on the investment in, and build out of, long-haul fiber. Companies like Global Crossing, Level 3 and Williams Communications raised tens of billions of dollars to lay fiber between cities along railroad and pipeline rights-of-way. Very little capital went into the metro networks that connect office buildings, cell towers and data centers, which was slower, more expensive and more operationally intensive to build.  As a result, long-haul fiber capacity vastly outpaced demand and much of the sector went bankrupt.

In the aftermath, impacted investors and lenders did not distinguish between an overbuilt intercity route and a scarce metro one. To them, all fiber was tainted, and by the mid-2000s, almost no institutional capital would consider investing in, or lending to, the sector.

M|C’s long history of investing across communications and technology services provided useful context for understanding these shifts. It helped us recognize that the dislocation in the fiber market was temporary and that much more durable demand was developing.  Specifically, there were three emerging technologies poised to drive massive demand for fiber networks: mobile data, cloud computing and streaming media.

Rising Bandwidth Needs and Demand Emerging at the Network’s Edge

Following the launch of the iPhone in 2007, mobile data usage increased rapidly, placing significant strain on wireless networks in major markets such as New York and San Francisco. The primary constraint was not a lack of towers, but the limited backhaul infrastructure connecting existing towers to the broader network. In most cases, cell sites were still served by only a handful of copper T-1 lines. The introduction of 4G in 2010 further intensified these requirements and as mobile devices evolved from primarily voice-based applications to data-intensive platforms, bandwidth requirements at cell towers increased by an order of magnitude. Towers that had historically been served by a few 1.5 Mbps T-1 lines increasingly required fiber connections capable of delivering 100 Mbps or more.

At the same time, an equally important transition was underway within the enterprise. Companies were beginning to migrate applications, storage and computing workloads from on-premise infrastructure to the cloud. Amazon S3 provided an early indication of the scale of this transition: The number of objects stored on the platform increased from fewer than 3 billion in 2006 to 262 billion in 2010 and 762 billion just one year later. This migration materially altered network traffic patterns, with connectivity becoming increasingly critical to accessing core business systems.

Streaming video added another significant source of demand. YouTube emerged in 2005, and Netflix began its transition from physical DVDs to streaming in 2007. Together, mobile data, cloud computing and streaming video were driving a step-change in bandwidth consumption across the network.

Internet demand was finally beginning to absorb the substantial long-haul fiber capacity built during the prior decade. But the bottleneck was now at the network edge: the metro fiber connecting cell towers, enterprise buildings and data centers to the core network. Much of that infrastructure had yet to be built.

As 4G deployment accelerated, wireless carriers began entering into long-term contracts—often ten years or more—to bring fiber to their towers. The economics were attractive, with construction costs frequently recovered within three to four years through contracted revenue. The limiting factor was capital. Many of the regional fiber operators that controlled valuable local routes and customer relationships lacked the financial resources to fund the required expansion.

From Restructuring to Building: Testing M|C’s Metro Fiber Thesis Throughout the Financial Crisis

By 2008, the environment changed again. The financial crisis shut down much of the remaining capital available for network expansion. M|C’s conviction in metro fiber, however, had been developing for several years. Our recent activity in the sector came through a very different strategy. In the early 2000s, much of the industry was in distress. Capital had disappeared, valuations had collapsed and many fiber networks were being sold for a fraction of the cost required to build them. At that stage of the cycle, the opportunity was not to finance growth. It was to restructure what remained. We acquired impaired networks, reduced costs, exited business lines that no longer made economic sense and repositioned the underlying infrastructure around more durable sources of demand. ICG became the most important of those investments. In 2004, M|C acquired the company as a distressed turnaround after roughly $3 billion of capital had previously been invested in the business. Demand on ICG’s metro networks in Colorado and Ohio was beginning to accelerate. Just as important, the sources of that demand were changing. Growth was increasingly coming from carriers, enterprises and data centers, rather than the long-distance resale traffic that had characterized much of the earlier competitive local exchange carrier (CLEC) market.

That distinction proved important and reshaped our view of the sector. The fiber itself had not been the problem in the prior cycle. The problem was how much capital had been deployed, where it had been deployed and which business models had been built around it. By the middle of this new decade, the underlying infrastructure was beginning to serve a different set of customers with more durable bandwidth requirements.

That insight into a new growth paradigm changed M|C’s strategy. Restructuring had been the right approach for a sector in contraction. As the market began to recover, however, the opportunity shifted from repairing legacy businesses to building scaled regional fiber platforms.

The financial crisis did not create M|C’s metro fiber thesis. It tested it. And because the strategy had been developed before the market dislocation, we were positioned to continue investing at a point when much of the market had stepped away.

Consolidating the Metro Fiber “Orphans” with Zayo Group

In early 2007, M|C and a small group of other investors backed Dan Caruso and his former ICG team to form a company called Zayo Group. It had no assets, but a plan: Consolidate the regional fiber “orphans” – subscale metro networks owned by founders, utilities, municipalities and distressed carriers that had unique assets but not the capital or management to sell into the coming demand. The first wave of acquisitions included PPL Telcom, Memphis Networx, Onvoy and Indiana Fiber Works, among others, and came together as the credit markets were shutting down. Zayo continued acquiring throughout the financial crisis and by 2013, had acquired 28 companies, including AboveNet for $2.2 billion (in 2012), building the largest independent bandwidth infrastructure provider.

A significant part of Zayo’s success was the management team. Dan Caruso had been a founding executive at MFS and Level 3 before leading ICG, and many members of his senior team had worked together through ICG’s restructuring. This team had the unique ability to deconstruct, stabilize and reposition a highly distressed asset and then pivot to building a new platform designed for aggressive growth and expansion. They understood the demand trends supporting metro fiber but also had a clear operating model for executing a large-scale acquisition strategy.

Backing an experienced management team to build a new platform, rather than acquiring an established company, has been a recurring element of M|C’s approach. Zayo is an important example of that model and of the broader value-creation strategy of combining operating expertise, disciplined M&A and integration to build scale and strategic relevance in a fragmented market.

Zayo went public in 2014 at just under an $8B valuation and was taken private by Digital Colony and EQT in 2020 at a $14.3 billion valuation. It remains one of the largest fiber networks in the world and one of the most successful investments in M|C’s history.

Buying a Utility’s Unwanted Fiber and Towers with Lightower

Lightower started out as the U.S. communications subsidiary of National Grid. The subsidiary’s assets included ~920 route miles of fiber along its transmission rights-of-way in New England and upstate New York, 340 communications towers and a handful of distributed antenna systems (DAS). The fiber had routes that no competitor could replicate, but they were badly underutilized as National Grid had never built a commercial sales effort around it.

National Grid had recently run an auction for its UK tower business and wanted its non-core U.S. telecom business gone. Working with existing local management, M|C and another investor approached the seller directly and preempted a planned auction with a $290 million bid. We offered fast diligence, a quick close, and a single buyer for both the fiber and the towers. The implied price on the fiber was roughly 6x EBITDA, which was possible because most investors still wouldn’t touch this sector.

In 2008, about a year after closing, Lightower sold the tower and DAS assets to SBA Communications for $224 million, recovering most of the purchase price for all the assets and leaving a pure fiber company. M|C recruited Rob Shanahan, who had helped us build Brooks Fiber in the 1990s, to be Lightower’s CEO. He built a professional sales, engineering and M&A organization around the asset, and revenue and EBITDA growth compounded at ~17% and 19% per year over the next four years.

Lightower made six fiber acquisitions in quick succession including another underutilized utility fiber network from KeySpan Communications covering New York City and Long Island. The result was a contiguous fiber network in the Northeast comprising more than 7,000 route miles by the time we exited – on routes with real barriers to competition. It was a business that had never been run as a business; When M|C invested, customer orders were still coming in by fax!

In 2012, Lightower agreed to be sold to Berkshire Partners for $1.4 billion, roughly 12x EBITDA, and was merged with Sidera Networks.

Putting Video Relay in a Deaf User’s Pocket with CSDVRS

In 2006, M|C invested in CSDVRS, a provider of video relay service (VRS) that enabled deaf and hard-of-hearing users to communicate through sign-language interpreters over video, funded through the FCC’s Telecommunications Relay Service program. At the time of our investment, VRS was largely tethered to the home or office, requiring users to access a dedicated videophone over a fixed broadband connection.

This was a different business from fiber, but it benefited from many of the same underlying trends: increasing broadband penetration, the rapid adoption of smartphones and the growth of video communications. It also reflected several elements of the M|C playbook: a regulated service with a durable revenue model, an underserved customer base and an opportunity to use technology to materially improve the product and expand the addressable market.

An important part of the investment was strengthening the leadership team. M|C recruited Sean Belanger as CEO and worked with him to build out the broader senior management. That team helped reposition the company around product innovation and new distribution channels.

In 2010, CSDVRS launched Z4, the first VRS application available on the iPhone, effectively turning a smartphone into a mobile videophone and allowing deaf users to make calls from virtually anywhere. In 2012, the company leveraged the same video platform and interpreter network to launch Stratus Video, an on-demand video remote interpreting service for hospitals and other healthcare providers. Stratus quickly developed into a meaningful second business line, and CSDVRS’s revenue more than quadrupled and EBITDA increased over 15x during M|C’s ownership.

In early 2015, M|C sold CSDVRS to Kinderhook Industries.

Restructuring a Central European Fiber Operator with GTS

In 2008, M|C invested in GTS Central Europe, the largest alternative network operator across the Czech Republic, Poland, Slovakia, Hungary and Romania. GTS had metro fiber rings in the region’s 24 largest cities, a 19,000 km backbone built at a cost of ~€700 million and connections into 3,500 on-net buildings.

The deal originated from a European fiber mapping exercise M|C had run with Columbia Capital. We made an unsolicited offer in late 2006, which the seller used to launch an auction. The auction failed and our consortium was granted exclusivity in late 2007.

Our thesis for GTS wasn’t about growth; it was about restructuring. We consolidated five country operations, exited non-core residential and wholesale voice businesses, and repositioned the company around enterprise data and data center services. We also replaced the senior team and recruited Danny Bottoms, the former CEO of Cavalier Telephone, as CEO.

GTS is a reminder that M|C’s strategy is set by the asset and its market, not by a single template: In the same years we were building Zayo and Lightower for growth, GTS called for the restructuring playbook we had honed in the early 2000s, with service delivery efficiency as the primary lever. In 2014, Deutsche Telekom bought GTS for €546 million.

Building a Scaled Midwest Fiber Platform Through a Non-Profit and Distressed Assets with Everstream

In 2015, through a long-standing relationship with CEO Brett Lindsey, M|C helped separate an undercapitalized fiber network from a non-profit to establish Everstream as an independent growth platform. The initial business generated approximately $14 million of revenue and $2 million of EBITDA, with roughly 2,000 route miles of fiber and 600 on-net buildings across northern Ohio. M|C subsequently acquired two adjacent distressed fiber networks, expanding Everstream’s footprint and providing the infrastructure necessary to support continued growth.

The value-creation strategy centered on transforming a constrained regional network into a scaled Midwest fiber provider. M|C recruited a senior management team around Brett and made a significant investment in sales and network expansion. Over the course of our investment, sales increased over 10x and the network expanded to 10,300 route miles and 2,000 on-net buildings across Ohio and Michigan. At the same time, Everstream broadened its customer base from an exclusively enterprise-focused to one serving enterprise, carrier and fiber-to-the-tower customers.

By 2018, revenue had grown to approximately $50 million and EBITDA to $15 million, and the company was sold to AMP Capital for $333 million.

The Repeat Entrepreneurs Behind M|C’s Successes

Since M|C’s founding, the entrepreneurs behind our deals have been integral. Dan Caruso (ICG and Zayo) played a crucial role this decade, educating the market on the value of bandwidth infrastructure. His Zayo playbook of disciplined acquisition pricing, synergized EBITDA, fast integration and transparent reporting of unit economics ushered in a new class of infrastructure investor and repriced the sector from 5-7x EBITDA to 15-20x. 

Rob Shanahan (Brooks Fiber and Lightower) stayed close to M|C since helping us build the New England region of Brooks Fiber. A strong operator with a loyal team willing to follow him into his next opportunity, Rob jumped at the chance to take the reins at Lightower and reposition the company from a small local business into a dominant regional fiber player.

Danny Bottoms, who ran Cavalier Telephone for M|C in the 2000s, took over GTS in Central Europe, and executed a restructuring across five countries and four currencies. Brett Lindsey, who was formerly VP of Sales of City Signal and President of Elantic, brought commercial and operating experience to Everstream, helping transform an undercapitalized regional fiber network into a scaled Midwestern platform.

A Systematic Process, Sector Depth and a Flexible Playbook Made the Decade

This decade reinforced several principles that have long shaped M|C’s approach to investing. The first was the value of developing conviction before a sector becomes widely understood. In the aftermath of the telecom collapse, communications infrastructure remained deeply out of favor, but that dislocation created an opportunity for investors willing to distinguish between flawed business models and valuable underlying assets. Years spent restructuring companies such as ICG and Elantic gave us a detailed understanding of network economics just as the fundamentals of the sector were beginning to improve.

Equally important was the breadth of M|C’s perspective. Because we were investing across wireless, cable, data centers, IT services and media, we could see developments that might otherwise have appeared unrelated. The rapid growth of mobile data, enterprise cloud adoption, and streaming media were all manifestations of the same underlying shift: Enormous increases in data consumption were changing how networks were built and where capacity was required. That perspective helped inform our conviction in metro fiber before the opportunity was broadly recognized.

Ultimately, the investments that defined this period were not the product of a single thesis or transaction. They reflected a combination of sector knowledge accumulated over multiple cycles, a willingness to invest when capital and consensus were scarce, and the flexibility to change our strategy as the market evolved.