Y our valuation unlock from where we sit here, specifically as we consider the sum of the parts valuation, that we would ascribe to Uniti, the company's still trading below those levels. Just curious, what do you or think or anticipate help Uniti get to appropriate valuation? I think closing the deal would be one, but just help, help us out there.
Yeah, so we've recently put out the proxy for our transaction, and there's a lot of interesting background, reading the narrative leading up to the merger announcement, which shows a tremendous amount of strategic activity by us over the past several years. And a lot of that activity validates what we've been saying all along about the intrinsic value of our assets, including premium multiples, compared to where we trade, and frankly, compared to where we previously traded. So we've always felt undervalued, thus working hard at strategic initiatives to try to unlock that value. So that's number one and a good backdrop. I think number two, with respect to the catalyst, we need to keep executing at Uniti.
I really believe we have one of the best fiber businesses, one of the best performing fiber businesses, and so continuing to show good execution is key because that's what allows those higher intrinsic valuations and continues to attract that strategic and financial interest in the assets. Number three, and probably more importantly, we need to execute at Kinetic. And we have to educate the market on Kinetic, which is the fiber to the home business at Windstream. And because that business has been private for three years, and in bankruptcy before that, I think the market is cold on that business, and so we've certainly heard that in spades, that we need to educate the market more, and so we've been doing that, and I think that's gonna be one of the catalysts, is continue educating and continue performing.
Thirdly, we need to relieve some of the technical pressures on the stock. So Greg, you mentioned the fact that closing is still a ways off. I think in reality, we think it could be sooner, and we're gonna have more to say on that soon, but that's something that takes care of itself, the passage of time. Secondly, we need to work on collapsing the dual debt silos, and that's something that we're actively working on, and we'll have more to say on that as well in the near future. And then thirdly, the shareholder vote is right around the corner, and we still feel confident about that.
So as we start to knock off some of these sort of technical pressures on the stock, I think those are all gonna be catalysts, and that's way before we even close the transaction. Then I think upon closing the transaction, we need to execute. We need to integrate the businesses, get on with our synergy realization, and I think when that happens, you know, the market will start to recognize that this business is really at the crossroads of two key themes in our industry right now, including convergence of fiber to the home and wireless, and secondly, hyperscaler demand. And I know we're gonna talk a lot about that. But we're very excited about telling that story.
And frankly, as we've proven in the past, if we don't get the valuations in the public that we expect, we're gonna go back to being active on the strategic front as well. So that's still part of the roadmap.
Right. Got it. And, hopefully, we have time to talk about both the convergence on the Kinetic side and but then let's talk about enterprise and, GenAI demand on the fiber side first, the fun stuff here. You know, Lumen came out, you know, not too long ago with a press release noting $5 billion secured, on, you know, GenAI-driven fiber deals, another $7 billion in their pipeline. You know, maybe just talk about, you know, Uniti's opportunity and your thoughts specifically to, you know, that deal and how that can really translate into the things that you're doing.
Yeah, we've definitely noticed that deal and have followed very closely the market reaction and both good and bad fallout from it, and we've fielded a lot of questions about it. I think there's probably some misconceptions about it, and there's some things that the market maybe is focusing on that that's not correct. I think, number one, for Uniti, the hyperscaler demand is definitely real, and it's growing. It's ramped up very quickly. So at the beginning of the year, we had roughly a dozen opportunities in our funnel for hyperscalers, and now we have close to 90. So within a very short period of time.
A dozen to 90?
To 90. Ramped up quickly. We started to print deals with the hyperscalers. We've done deals with the hyperscalers in the past, but we've now started to do deals on a more regular cadence. So I think one of the things that the market seems to be trying to do is put all of these hyperscaler deals into a single bucket.
Very difficult to put in a box.
In reality, they're very different, and they're very consistent with how we sell to all of our other customers. So, for example, in the second quarter of this year, we sold a deal to a hyperscaler, all dark fiber, all inter- city, a dark fiber lease, which is MRR and EBITDA, but it positively affected bookings, no CapEx, and very high margin, so a terrific deal. And so I like to say that it hit all the vanity metrics, you know, MRR-
No CapEx, so that was a lease up on existing fiber?
All existing fiber.
Beautiful.
All lease up, a terrific deal, hit all the vanity metrics like bookings, revenue, and EBITDA. But then in the first quarter of this year, we did a deal with a hyperscaler, which was building greenfield fiber in a market, pre-existing market for us, and it came at a high NRC. So we typically talk about yields on anchor deals of 5%-10%. This yield was well in excess of that, and it was greenfield fiber that we now have the opportunity to go lease up on a recurring basis with our own fiber. Terrific deal, and we're gonna feel the benefits of that deal for many years into the future because we've laid fiber that we're now gonna be able to lease up, very consistent with our anchor lease-up model b ut it didn't hit the vanity metrics, right? It didn't hit bookings. You don't see it in MRR or recurring EBITDA anytime soon, but that's still a terrific deal. And I think that's probably closer to what Lumen did, but-
Right. And that's the misconception that you speak of is, it's not hitting the vanity metrics, to use your words.
But that doesn't mean it's not a terrific deal.
Yeah.
Ultimately, that's a deal we would do all day long because if it comes with a lease-up model on the other side in these deals-
That's, that's key, right? I mean, you're building these things out to the Tier 2, Tier 3 markets, even Tier 4 markets, 'cause maybe that's where the power is for the data centers. The risk is, can you lease them up, or is this just gonna be one strand of a data center to nowhere, for lack of a better word?
That's exactly right. We've seen those no one strand to nowhere deals, and we haven't done them. And I think that's my third point, which is I think as a fiber industry, we're a lot smarter about deals that we take on, and we're a lot smarter about not overbuilding each other. And so there's a lot more discipline in the industry, which is a good thing. Last point, sorry, I'm going on, but-
Sure.
I think I've heard a lot of debate about the AI use cases and how that's important, because if... Are those use cases really gonna drive demand or not? Is it really sustainable? I think the reality is, the demand is more hyperscaler-driven than it is AI. I think the hyperscalers are investing in this infrastructure, and they're even saying publicly that if they don't use it for AI, they're gonna use it for something else. So AI is just one of the use cases of many that I think the hyperscalers can use. So the incremental TAM that we're seeing, don't attribute it just to AI, attribute it to the hyperscalers. I think that's a significant difference.
And very last point. We're in this really lumpy period where we're investing in the learning modules, and the big proprietary data centers, and so you're gonna continue to see lumpy deals and deals that don't necessarily hit the vanity metrics. But once we get to the inference phase, I think that's when businesses like fiber to the home, fiber to the building, even fiber to the tower and small cells, are gonna start to see that benefit. Because that's when that edge low latency, streaming, or online inference is gonna be key, and I think that's when you start to eventually see the MRR effect.
Right. Okay, so when you move towards the inference, that's when you get those, maybe lease-up opportunities-
Correct
... and make up for it, if, for lack of a better word. Maybe more of a technical question. Just curious how many connections, you know, you go into to a data center, you know, when we speak to the data center providers, they wanna see three or four networks going in. So but, you know, Microsoft just signed one large one with Lumen. And in your case, in Huntsville, maybe not speaking that one specifically, but in general, like, how does that work? So are you the only one in Huntsville? Because that doesn't make sense to what I hear about the hyperscalers wanting a couple of providers in.
I think that that's a good question. I think the key is, it's not necessarily multiple carriers, it's multiple routes.
Routes.
So, for example, if we can be and are the sole carrier in some of these data centers, but we're selling multiple routes. You get how redundancy works. I mean, if there's one route that's down with us, there's a second route that's up for us, then that redundancy works So that's particularly true in Tier 2 and Tier 3 markets, because typically there are not multiple carriers going into those markets, and that's really where we are. But there are other markets, including the NFL markets, where that redundancy does tend to come from multiple carriers.
Right. So you could be the one carrier, but you're- maybe you have two or three different points where you could reach that data center.
Correct.
Okay, gotcha. Maybe just talking about the margins that you see on these higher upfront NRC sort of deals. You know, typically I would've thought that, you know, when they pay upfront, you've gotta put that back out there in terms of CapEx in the data centers, and I'm just curious if that's the case or not, and you actually pocket some of that.
It's a good question, and yet the answer is yes and no. In some cases, when we're asked to build new fiber or to build off of existing fiber with laterals, then yes, there's new construction, and the IRUs or NRCs, whatever you wanna call them, are used to offset that capital spend. And so therefore, you get into this discussion about yields, and I'll tell you that, whereas in the past we've always talked about those 5%-10% anchor yields on new builds, what we're seeing is substantially better than that on these hyperscaler-
That's the DCF from the upfront cash then?
No. That's a yield on the capital that we're putting at work. A lso burdened with the OpEx that we're putting to work on day one. So that's the initial cash flow yield. There are other transactions where if you're selling existing infrastructure and there's no CapEx, then those are obviously very high-margin transactions. And so if you have a large embedded investment, network, then there's a lot, lot of those opportunities, and that, that's the case for Uniti.
Right. And going back to the comment about, you know, 90 deals in your funnel, I'm assuming, like... Help me with the size of those. I mean, any Huntsville deals like that, or are they a lot, a lot smaller? Just trying to understand the nature of these deals.
Yeah, they're across the board. We don't have any $5 billion deals and I don't anticipate having any of those. I think those are more of the unicorns, at least from our vantage point. These are more $10s of millions, $100s of millions deals, and so there are definitely deals like the one you're referring to out there, and those are growing, but there are also just those regular way deals. We're selling waves to hyperscalers. We're selling inter-city dark fiber connectivity to hyperscalers, so not inconsistent with just our regular way business. So if you were to ask our sales team, if they were here, they would not attribute this demand to AI. They would just attribute it to customers that are buying fiber capacity, both lit and dark, at a much higher velocity than they have historically, including going back to just last year.
Got it. And so we talked about the economics and the nuances of dark fiber deals with GenAI. I'm curious about the pricing environment in GenAI on your lit services, particularly the waves business. You know, will pricing, will it increase, will it decrease? No incremental change from what we're seeing with GenAI on waves?
It's very route specific.
Route specific.
I think on, you know, Dark Fiber is a big part of our business. I mean, but I prefer Dark Fiber over lit, frankly. You know, higher margin, less CapEx, longer term contracts, more predictable, lower churn. Dark Fiber pricing has stayed very stable in the industry for years. I mean, if you go back 10 years, people are still selling a 1,000-mile, $1,000 per strand mile, and that's roughly what we're doing today, plus or minus, depending on the route. On lit services, it's different because there are many routes that if they're lit, almost by definition, they're more competitive. And so when you've got competition, you've got to respond to the market. We tend to stay away from the more competitive markets. Our whole one of our true north of our thesis is to target those Tier 2 and 3 markets and routes.
And so, when you have those, you have a little bit more pricing power, and I think in addition to that, there's a pretty steady cadence of upselling bandwidth, right? So waves are now... They're not 10 gig anymore, they're not even 100 gig. It's now 400, and we're even looking now at 800 and probably terabit plus. So similar to products in the past, if you're able to offset pricing compression with bandwidth upgrades, you can pretty much stay neutral to positive.
Right. Maybe same or higher ARPU, but a lot more, a lot more units.
Yeah. By the way, I'd say, just tying that to your question about hyperscalers, I've said this before, but the hyperscalers are, they're very smart at buying capacity. A lot of the people at the hyperscalers are telecom people. They know the industry.
Yeah.
But they also have more capital to put to work, and they tend to be less price sensitive and more focused on quality of net-
Getting it done fast and-
Quality of network, speed to market, and predictability of speed to market. So, if they say they need something in six months, they mean six months, not nine. And so I think they want to work with people or companies that have a proven track record of construction.
Got you. And you noted on your earnings call that 40% of your funnel is GenAI. Is that the 90 deals in the funnel? So is that a good way of extrapolating it?
Yeah, well, we've gotten that question a couple of times. So what we said was 40% of the bookings this quarter were from AI. We didn't actually give a specific percentage of the funnel that's related to hyperscalers. I would say it's not quite that high, but it's growing. I would also say that it's also not part of the way we talk about the funnel publicly is just MRR which means bookings, and it doesn't capture some of those deals, like I described earlier, that don't hit bookings.
Right.
So if you just-
Upfront, though. Yeah.
Right. So if you included just contract value in addition to MRR, that number would probably be higher.
Right. And like you said earlier, a big focus would be lease-up deals, right? So in order to obviously, you know, get higher margins and low CapEx.
Right.
Okay. And then you also noted on the earnings call that wireless was picking up a little bit in the second half. To what degree do you expect to pick up as we consider, you know, the weaker 2023 going forward spending? And is this a small or a gradual pickup, or is it gonna come to a meaningful degree?
Yeah. So first, I would say, and I heard this on a previous panel, which was great, by the way, that none of us fiber companies are betting our future on hyperscaler demand. We didn't build our businesses expecting that demand. This is definitely incremental to the TAM, so I think that's something to keep in mind. And to that point, as a wholesale provider, we pride ourselves on being pretty diversified across hyperscalers, wireless, international ISPs, fiber to the home, carriers who are buying backhaul, and others. And to that point, wireless has been down. Wireless was down in 2023, but you really didn't see an impact on our business. We still grew at that solid mid-single digit. I won't say how far down bookings were in 2023, but they were down.
Yeah.
What we said at the beginning of the year was, we thought bookings would start to tick up this year, and it would really--we'd really start to see it in the second half of this year on wireless, and that's what we're seeing. And so I think by the end of this year, we'll probably... Booking, wireless bookings will probably be up around 10% over 2023, year over year. And a lot of that, it's still speculative.
Sure.
But the early indications that are typical of business are out there, which are wireless carriers are talking to us about what they need. They're talking about 25 gig versus 10 gig. They're talking about that they're starting to put out RFPs with, you know, multi-site locations, including existing sites, new sites. So those are all, like, leading indicators that suggest opportunity is coming. It certainly in the second half of this year, and I expect probably a bigger pickup in 2024.
Interesting. So it's RFPs for multi-sites, but you also mentioned maybe shoring up some of the fiber to the tower, so 25 gig sort of spectrum. Is that another business?
Even new sites-
New sites
... so infilling,
Yeah
... and we're even seeing a little bit of activity on small cells, which I've-
Yeah
... we've always talked about small cells as probably not being a huge part of Uniti's business, at least in the near term because we're in the smaller markets, and we said, when small cells come to those markets, we'll be there and be ready. So, we're starting to see a little bit of that, but I think that's probably still a little bit off into the future.
Right. Curious if you think maybe AI could be a driver to the micro edge, and maybe we do finally see small cell proliferation?
I think it definitely is, and it's one of the reasons why you know, back to what I was saying earlier about that, inference phase, I think that's when having the fiber to the home, fiber to tower, fiber into the building is gonna be key because that is when latency matters. That is when speed, latency matters, reliability matters at the edge, and, you know, I think that's going back to what I was saying earlier, that's been consistently true of the hyperscalers business model for, for years, right? Not just about AI, but other business cases. And so I think on a, on a go-forward basis, those types of businesses that are more MRR-driven are gonna benefit from, from that, from that cycle.
Got it. And, you know, on the earnings call, and even today, you again reiterated, you know, the M&A fervor, I guess, in the fiber space, and even fiber to the home, if we wanna talk about convergence, but, you know, we all read the S/4, and we saw that there was no shortage of discussions happening. Maybe help us with the various M&A scenarios that would be attractive to you, as you sit here today.
Yeah, well, first, I think on convergence, you know, I know there's a lot of debate about whether that's real or not, and whether it's important or good for the industry. I think some of our biggest customers talk about it as an important theme, and others of our big customers not necessarily, and so I think the body of empirical evidence is still developing on whether it's important or not, with respect to customer retention and upselling customers or just selling to new customers. But one thing I think is indisputable is that there is a substantial amount of investment being made in fiber to the home, and whether you think that needs to be bundled with a wireless offering is not really the question.
The question is whether you think fiber to the home is a good product, and whether or not it could be in the roadmap for some of these large strategics who are looking to develop their conversion strategy. I think the answer to that question is emphatically yes.
Right.
So, you know, at Uniti and Kinetic, Kinetic is developing a, or has developed a wireless offering along with its fiber to the home offering. It's a bundle with AT&T. I think if they were here, they would tell you it's more of a retention strategy as it is, opposed to attracting n ew customers, so more retention. But, I think with respect to the strategy and maybe to your point on M&A, the strategic value of that business, to me, is substantially enhanced today than what it was when we signed this deal, and certainly what it was, you know, six months before the deal. And I think six months from now, 12 months, you know, 24 months from now, the strategic value is gonna be enhanced even further.
Sure, and I guess it doesn't even matter if there's empirical evidence waiting for convergence or not. I mean, at the end of the day, if one or two of the carriers or cable companies, et cetera, are going down that path, it sort of forces the others to do so, almost whether you like it or not. I mean, does that change your outlook on the Kinetic assets, in any way? I mean, I think you kinda said that it's fiber to the home regardless, but now maybe it's fiber to the home on steroids at this point.
I think it is. I think it's... Look, before we did our transaction, and as we were contemplating it, we certainly felt that it was a strategic asset. Some of the background reading in the S/4 validates that there's been interest in that business for some time, so we've been convinced of that for some time. I think what we've seen over the past few months just is further validation of that. I do think that it's also one of the, to your point about on steroids, it's one of the reasons why we think expanding that build getting to, you know, 60%+ coverage of the footprint with fiber is important. We think that's the right model, we think the returns are there, and we also think that makes it a more strategic asset and a better performing asset on a go-forward basis.
Right. And then how about M&A on the enterprise fiber front? You know, any updates on, you know, keeping Uniti Fiber within a QRS, and, and, you know, you know, how do you think that'll unfold?
Yeah, so just as a reminder, our view of the new business going forward is we would have Kinetic, the fiber to the home business, the fiber infrastructure business, which is our current Uniti business, plus Windstream Wholesale, and then there would be the managed services business, which is Windstream's current enterprise business. That latter business, we've been public about how that's not core to our fiber infrastructure strategy. It's a good business, cloud-based enterprise product business, good strategic value to it, but it's just not core to our fiber infrastructure business. I think the fiber infrastructure business and Kinetic actually go well together synergistically.
You know, we've been very candid about how the fiber to the home business needs that middle mile, and it needs that backhaul to the core. And in fact, some of our biggest customers over the past couple of years have been fiber to the home providers buying backhaul from our wholesale business. So we think there's a lot of synergy to keeping those businesses combined, and that's our base case. But at the same time, I think there's potentially two different strategic homes for those businesses. And I think over the past, you know, again, 12 months, I would say the interest in wholesale and enterprise fiber has also been enhanced, and the hyperscaler demand and AI discussion has not dampened that enthusiasm I would say, so.
Yeah, I'm kinda curious if the Gen AI fiber discussion has actually maybe, you know, put some of these assets in play. I mean, does it put it?
Well, I think it does. I think, you know, so today we've had a full schedule of meetings, and this is the first conference post the announcement of our transaction with Windstream, where the meetings have been dominated by questions about our wholesale business and our fiber and our enterprise fiber business, and hyperscaler demand and generative AI, whereas previously it was fiber to home. And so I'm not saying there's a shift necessarily, but I do think, as I said earlier, I think the new Uniti is really at the crossroads of those two themes: convergence, you know, fiber to the home, wireless convergence, and hyperscaler demand, which is additive to the, to the fiber TAM. So those are both good things for this, for this new business.
Right. And then that third piece you mentioned, managed services, is non-core. I mean, you were exiting managed services even before, so now you've sort of inherited it. Just maybe an update on, you know, Windstream's managed service business and, you know, when or how you can look to possibly sell it?
Yeah, it's, and as a reminder, you know, we're very infrastructure-focused and product-light. What we like to focus on connectivity, so Ethernet, DIA, internet, Waves, Dark Fiber, some really simple connectivity products. We do some managed services, but that's more sort of, I would say light touch. And it's definitely value accretive, but it's a very small part of our business, and it's smaller than it was, right? Because we've exited most of that. And it's all, and our infrastructure business is all on net or predominantly on net. So we're big believers in owning the underlying infrastructure and getting owners' economics on that connectivity sale. Windstream's enterprise business is different from that strategy.
It's largely off-net, and it is cloud-based, UCaaS, SD-WAN, security, firewall. Again, good businesses and cash flow accretive businesses. Very little CapEx associated with it. EBITDA is flat to slightly growing. And so there's good strategic optionality to keeping that business as part of the overall. Uniti and having it be accretive from a cash flow perspective. But we also think with respect to, you know, having a fiber infrastructure story that's simpler, there's strategic alternatives for that business, and there are definitely some strategic interest in those assets, particularly the cloud-based assets.
Right. And then just shifting gears to Kinetic specifically, you mentioned that, you know, it's been private for a couple of years and through a bankruptcy process, and you want to, you know, come out and educate investors on Kinetic and the attributes. Maybe you can help us today on highlighting some of the things you do want to go out there and educate the investors on Kinetic.
Yeah. So, well, I'll start with some of the vanity metrics, and I don't mean vanity in a bad way, but I mean the ones that people tend to focus on. So number one, it's more of a rural footprint, so similar to our strategy, Uniti of focusing on Tier 2 and Tier 3 markets, build fiber first, build fiber early, and you have a right to win for many years into the future. Kinetic is doing that. It's a more Tier 2 and Tier 3 footprint with less competition, and so the percentage of overbuilders in their markets has hovered around 15% for five years now. So once they started building fiber to the home back in 2019, overbuilders have largely stayed away from those markets.
So I think that's an important fact, number one. Number two, ARPU is pretty healthy. You know, eighty almost $90 per month ARPU, and it's been growing consistently. We get the question: "Is that too high? Is there some p ricing pressure,
Sometimes you see that it's like Cable One, that's more rural, so they sort of command a higher price of ARPU and now, I mean, on a decision they're making on their own, their, their ARPU is getting hit, and that's a question we get as well, is, was the ARPU growth sustainability at Kinetic?
I think it is. I think there's. So when Windstream reports that number, about 7, the true broadband ARPU is around 70, which is not substantially higher than most, right? So the other things in there are cable modems, little bit of voice, little bit of residual video. So I don't think there's as much downside pressure as people could be concerned about. And plus, in these more rural markets where you have candidly less competition, you do have a little bit more pricing power. So I think that's a good story that people just need to understand.
And then thirdly, cost to build. Kinetic is building at $650 per home. That's lower than the industry average, and you can debate what that average is, but it's still low and attractive. Historically, Windstream has built a lot of fiber to get fiber to the node, that is really just investing in the Uniti network. So it's building some of that long haul, building some of that middle mile, and ultimately to the node, that they're now at taking advantage of because they don't have to build all of that to get to the home. It's really just-
Right, all the central offices and nodes are tied up with fiber Ethernet, so that gets you just a shorter last mile.
Correct. We talked about that on earnings. We talked about how, you know, over almost 100% of nodes that are broadband-enabled have that 1 gig connection to the node and 10 gig connection to the central office or from the central office. Thirdly, Windstream, several years ago, put together their own internal build capability. So back when we were all debating labor shortages and could you get the teams in place to actually execute on the build? They made a very strategic decision to develop their own internal build-
In-house
I n-house build capacity. And so that not only gives them the ability to control that build, it gives them the ability to fund it at a lower rate. And we estimate roughly 20%-30% savings on building it internally. So anyway, you put those things together, you know, rural, more rural footprint, attractive and growing ARPU, attractive build capability and build rate. There's a lot of potential in that business, and I think historically, I wouldn't say Windstream has been capital constrained over the past few years, but I think on a combined basis, that Kinetic business can now benefit from the owner's economics that I mentioned earlier. And so I think on a combined basis, we're gonna have the ability to really expand that build.
Right. And on your first point about being, you know, rural, I mean, I think penetration could be even higher in some ways. So, you know, what do you have for terminal penetration targets at Kinetic? I mean, typically, you know, it could be 45%, but in rural areas where you're sort of the only game in town for, in some of the markets, you know, it could be way north of that. I'm just curious if you have-
I think I don't wanna give a number because Kinetic has not communicated about that publicly, but I think your general direction is correct, I think.
All right. To what extent do you anticipate Windstream participating in the BEAD program? You know, are your hands full at this point, and would you need a partner to go out and build some of these BEAD homes?
I don't think we need a partner, and I do think Kinetic and we will participate. It's really, we get asked the question, "Why are we doing this combination with Windstream now versus sometime in the past or sometime in the future?" One of the reasons is we wanted to approach this BEAD opportunity on a combined basis, because I think this is a, by definition, BEAD is targeting the smaller, more rural markets, which is exactly where Kinetic's footprint is. And so, Kinetic has characterized this as a once-in-a-lifetime opportunity for, for that business. I think that's a good way to think about it. I think there's a lot of opportunity there. Our hands are not too full. This is something that we're very focused on, and I think there'll be more to say about that in the future.
Got it. And then, you know, the other way of playing the convergence game would be for Windstream to, you know, tack on an MVNO, you know, instead of maybe a larger strategic, you know, taking out Kinetic. So I'm just curious where Kinetic's thoughts are in terms of exploring an MVNO opportunity.
Yes, I mentioned this earlier, but they have actually put in place a... It's not an MVNO, but it's a co-selling opportunity with AT&T on the wireless side. So it's a wireless bundle where they're giving customers a discount if they bundle with AT&T Wireless. It's—I think they view it more as a customer retention tool than it is a ttracting new subscribers, as a way to sort of counterbalance the cable cos who may have an MVNO in their market. And they just started that at the beginning of this year, and I think the early returns on it are pretty good. It's performing in line with what their expectations were with respect to retention, and there's actually been an uptick in customers who are taking that service.
Right. You noted, you know, Kinetic's brought everything in-house or for the most part, and that's helped with the costs, 'cause my next question is labor and handling labor with upcoming BEAD challenges, and then, of course, supplies. Maybe you can talk to both of that within Kinetic and then at Uniti. I guess the second question to that is, you know, how do you think about the in-house? Sometimes there's pros and sometimes there's cons to it, and wondering if, you know, you would actually do some of that on the enterprise fiber side as well.
Yeah, good question. So at Uniti today, we do about 30, 20, somewhere between 20 and 30% of our own construction in-house, and the rest is obviously outsourced. That works really well for us because if we have a true, really strategic build that we need to hit a timeline, we've got an important customer, we can deploy our own resources and get it done. You know you're gonna get it done and get it done in a high-quality fashion. It also gives us a really good read on the market, so we know what labor costs, we know what materials cost, and so it's a way for us to keep contractors honest, for lack of a better word. And it gives us...
We're big enough, and we do enough new construction, that we've got contractors in our network that know us. We work with them regularly, and so we go back to them. If we go back to them on a regular basis, they know there's business there. We tend to get moved higher up on the list from a priority perspective. So we've never had a shortage of labor on the Uniti side, and that balance of 20-30% in-house, rest outsourced, works well. The challenge on insourcing too much of it is the economics work great, as long as you keep those crews busy full-time. What kills you from a margin perspective is if you've got crews spending a day or two a week driving from location A to location B t hat's lost time.
Yeah. Maybe that's the penalty of being rural, but also maybe just, you know, better planning can be done?
Correct. It's good. But as long as we're executing in our general footprint, that works well for us. On Kinetic, I would say they have been able to keep those crews busy virtually full-time, and so the economics have worked well, and that's why it's contributed to that low $650 cost per build. That's gonna continue to be the case as we go through expanding this build through the BEAD program and otherwise, and I think there may actually be a time when we need to bring in external contractors to help supplement that build, but I don't think any time in the future there will be a time when those crews aren't largely fully utilized.
Right. The FBA just recently put out a report saying that we're gonna need, like, 58,000 fiber workers. So I guess, you know, in-house could work to your benefit.
I think it has so far, and I don't see that changing in the near future.