Good afternoon. I think we can go ahead and get started. We're joined here with Kenny Gunderman, the President and CEO of Uniti. Before we go into the questions, obviously, you've had some big events happen this year, the closing of the Windstream transaction. It'd be great to hear from you, at a higher level, some of the other highlights of the year from an operational or capital structure perspective as well.
Sure. Ann, thanks for that. It's great to be here. I appreciate RBC having us, and it's nice to be on a panel with you. You and I have worked together for many years in various capacities. Our big event for the year was merging with Windstream and creating what we think is now the premier and insurgent fiber provider in the country. Back in May, when we announced the transaction, we talked about the strategic merits of bringing the deal together, bringing the businesses back together, and talked about the strategic value of the underlying assets. Since then, we've seen a lot of validation of that in the industry. Some notable events: T-Mobile now investing in fiber-to-the-home, that happened after our transaction was announced; Verizon acquiring Frontier; AT&T acquiring Lumen.
The wireless carriers beginning to invest heavily in fiber-to-the-home really validates the thesis that we had at the time our transaction was announced back in May. We're very happy to see that. Also, the emergence of hyperscalers as big bandwidth hogs, for the first time, has emerged in the space since then as well. We thought that was coming. We've been proven to be correct on that. I think that the level of excitement in the fiber space, for those two reasons alone—just fiber-to-the-home investments actually making sense for the first time in a long time, and hyperscalers and generative AI driving demand for fiber carriers in a way that it hasn't in a long time—are great and validating of our thesis, but also not to lose sight of the fact that all the other areas of broadband are growing as well. Our business is really hitting on all cylinders from that perspective when it comes to fiber. Now we're just on this journey to transition out of legacy services because there are some legacy services at Windstream. As we transition out of those legacy services and the spotlight is more and more on fiber, we're going to really show some hyperscale growth.
Before we touch on legacy services, before we move over to talking about the Windstream deal and your fiber-to-the-home buildouts, can you share your plans generally to manage through the legacy services that you inherited a lot from on the Windstream side and ultimately what the impact to your EBITDA and free cash flow is from that?
Sure. Prior to the deal, Uniti's business was 95% fiber revenue. The revenue was derived from customers that were on our own network. Now, pro forma for our merger with Windstream, that number is going to dip to 40%, so below 50%. In three years, three and a half years, we're going to get back to 75%, 80% fiber revenue. A big part of that transition is going to be overbuilding the copper plant at Kinetic with fiber. Today, Kinetic is an incumbent local exchange carrier with 4.5 million homes. Up to this point, we've built fiber to 1.7 million of those homes, and we have a plan to get to 3.5 million by 2029. That is a huge mission-critical focus of ours, to your point about transitioning out of those legacy services.
Fortunately, for people who don't know our story but follow the space, there are tried and true models out there. Ziply was a copper to fiber conversion story. Frontier is a copper to fiber conversion story. Consolidated Communications copper to fiber conversion story, all three of whom did this well and ultimately wound up with really attractive outcomes for their shareholders. We're on that journey with Kinetic and very excited about it. When you look at the Kinetic footprint, it's one of the last remaining scaled footprints that are available to build fiber-to-the-home that are not currently residing within one of the large wireless carriers. We've got a great path forward. The footprint is relatively protected. It's more tier two and tier three markets like we've had at Uniti over the years, which means by definition it's harder for a non-incumbent to build in those markets because the scale is just not there. Plus, we've pushed a lot of fiber out into the footprint already. We've got a great jumping-off point to build that last mile into the home. Long-winded way of saying we've got a great path to get back to 75%, 80% + fiber revenue. When we do, the vast majority of our revenue and EBITDA will also come from fiber. I've been telling people that in two or three years in the industry, I don't think we'll even be talking about copper anymore. It will become such an inconsequential part of our footprint, the footprints of others, and fiber will be such a dominant percentage of our revenue and EBITDA that copper and DSL subs will be inconsequential.
I think a lot of people in this room would agree with that, right? Across the industry, given the activity we've seen, you recently announced plans to accelerate your fiber builds. Can you share some perspectives on what made you comfortable in doing that? Is it some of the experience you've had? Is it learnings from what Frontier and Ziply and others have done? Or is it just general advances, right, in the buildout in terms of the construction and the permitting?
Yes, yes, and yes. Also, in the industry, there's a lot more capital going after that fiber-to-the-home space. If we don't build it, someone else is going to. Even though the Kinetic footprint is protected for the reasons I mentioned, it's still one of the last remaining virgin territories for building fiber-to-the-home, which means there is no fiber there now, and there's probably very little cable competition, or the cable competition that exists is from some of the really large cable providers that don't pay a lot of attention to those markets. That's a competitive dynamic that we really like. We want to get there before anyone else does. As a result of the merger, we've made several changes to the build plan. Kinetic started this journey a few years ago of building fiber-to-the-home, but now that the merger is closed, we've made three major changes to the plan to really help us accelerate that build. The first is we just did a complete refresh of the prioritization of the markets.
For those of you who don't know us, Windstream used to be a customer of Uniti's with an opco, proco structure where we own the underlying asset, and they had the operations. That led to some dissynergies between the companies that led to a prioritization of markets that wasn't exactly pure. It was more driven towards Windstream-owned markets versus Uniti markets. Now that that's no longer the case, we have an opportunity to prioritize the markets based upon true return dynamics and competitive dynamics and, importantly, building markets that are clustered as opposed to sort of the Swiss cheese approach. That's important because if you build markets that are clustered, you have economies of scale from a marketing perspective, a sales perspective, service delivery, and ultimately serving the customer after the fact. That's one really big change that's in place. Secondly, we're deprioritizing subsidized builds. Government subsidized builds make sense in certain cases, but from our perspective, if you're building a subsidized build, that usually means you're getting to fewer households per dollar because you're building in areas that are less dense. For us, we really want to build in areas that are more dense and get more households per dollar.
That'll help us accelerate the build. We are not worried about those subsidized markets ultimately getting overbuilt because by definition, that's less likely given that they're less dense markets. Thirdly, Kinetic has historically insourced all of their builds with internal crews, which is great, but it also limits your ability to expand the build. We are onboarding real-time third-party contractors to help us accelerate the build to augment the internal crews. Putting all those things together, we're very excited about the opportunity at Kinetic. It's really, like I said, virgin territory. With those three changes, we think we're going to really be able to accelerate the build and really get to those households in the next three years, like we said. Another very important ingredient with that is how are we going to pay for it? The ABS market, for example, is really there for our taking, and we're very focused on that. I think between that and the traditional high-yield markets, we've got a clear path to help finance this whole build.
Great. In terms of, as you look towards 2029 and your targeted passings, it doesn't sound like you think that there'll be a lot of cable competition over that period of time. What's your perspective on the equilibrium in markets around fiber-to-the-home, and I'd say for your markets, really maybe fiber-to-the-home and fixed wireless?
Yeah, it's a great question. The short answer is I don't know. I think that fixed wireless has been a stiffer competitor than we expected. I think that's probably true of all fiber-to-the-home providers, whether they admit it or not. I also think, however, that there's a bit of a hedge for us at Uniti because we're also a large wholesale fiber provider in some of our other businesses. As fixed wireless has grown, our demand from our wireless carriers has also grown to help service those fixed wireless sites and the fixed wireless demand. This year, for example, we're seeing a pretty sizable pickup in demand from our wireless carriers on procuring fiber to the tower and even fiber to small cells to help service that fixed wireless demand.
I also think that, and this is definitely a bit of a debatable point and maybe somewhat controversial, over the next two or three or four years, those fixed wireless subs that we've lost are actually going to be available to us to come back to our fiber network because we do believe that fiber is a superior product. It's superior from a latency point of view and a reliability point of view. Ultimately, fixed wireless will top out at a speed and certainly from a reliability point of view. We think at some point in the future, those are going to be available for us to try to claw back some of that. I don't know what the right equilibrium is. We've talked about roughly 40% blended penetration across our footprint. We're definitely tracking towards that in our current path from our early cohorts up through today, and we're not changing that guidance. Whoever has the other 60%, I'm not sure. We've also said that once we get to 40%, we're not stopping because we do think given fiber is a superior product, we're going to be able to continue getting share beyond that.
How do you generally look at that in terms of 40% across the board between recognizing you said you're in tier two and tier three markets, but between some of your more dense markets and some of your less dense markets? In the less dense markets, maybe there's even less competition from cable.
Yeah, it's probably less about density and more about what's the competitive landscape in the market. For example, at Uniti Fiber today, we're competing in dense markets, and our market share may be less than 10% or even less than 5%, but we're growing at 15% or 20%. We're taking share. It really depends on the competitive dynamic and over what period of time you want to look at the so-called terminal penetration, which I say there is no terminal penetration because we're forever striving for greater penetration. Generally, what we see in markets where we have one other one gig competitor, we tend to be in the roughly 50% terminal penetration area. Where there's not another one gig competitor, it's above 50%. Certainly, if there's another one gig competitor or a second one gig competitor, it's less. That's really the swing factor, less than density.
As you think about the buildout, we've talked around some of the priorities. The FCC has been pretty constructive so far this year in support of telecom operators. We've seen that with the Spectrum acquisitions, and now Carr is talking about being proactive around removing impediments for fiber builders. What do you see as some of the most important things that could be done from an FCC perspective to aid you all in a buildout?
Yeah, I met with Chairman Carr for the first time a couple of months ago, and I went into the meeting just thinking it was going to be an introductory meeting, and it turned into 10 or 15 minutes of him telling me, "Hey, tell me what I can do to help you." I told the team afterwards that was a missed opportunity. I should have gone in there with a list of five things that he could have helped us with. Of course, we followed up on that since. The point of that is that the Chairman and the FCC are definitely in the mode of helping telecom carriers achieve their goals with a commercially minded perspective. For example, copper decommissioning has been a theme in the industry for many years. It's now at a point where I think it's being taken very seriously at the FCC, increasingly at the various state PUCs.
From our perspective, we're not only excited about increasing the numerator of fiber-to-the-home passings, but we also think we can decrease the denominator. I think I got that right, because there are going to be parts of our footprint where we can't get to fiber economically. Having a strategy to decommission copper or to serve those copper customers with an alternative technology like fixed wireless or some other 5G device makes a lot of sense economically. Now we have an FCC and increasingly state PUCs who support that. Very excited about that. Secondly, permitting has been a big challenge in our industry for years, and it continues to be, especially when you're building fiber in a market for the first time. It's not because the permitting authorities, for example, aren't welcoming of a fiber-to-the-home provider. It's because they don't understand it. It's because there are just impediments in their permitting authority and on up the chain. The Chairman at the FCC has really focused on trying to streamline permitting across all of telecom. I think that hasn't really helped us yet, but I do think over time it will, and so we're very excited about that one too.
I'd love to give the audience a couple of minutes for questions. My final question for you is now with the merger just completed, right? I just want to stress that, right? Because you're in the early innings of integration. How do you really see the pro forma Uniti differentiating yourself across all of your business lines, whether it be fiber-to-the-home, wholesale, or enterprise? How do you see, you mentioned it earlier, the hyperscalers, demand and activity fitting into that?
That's super important from a wholesale perspective. A lot of companies, I think, have gotten so big that they've lost control of the customer and they've lost control of operational excellence in their markets. For us, we've got a national wholesale strategy where we can have a light touch interaction with customers, selling a lot of dark fiber or conduits or products that require little customer service. When we're serving an enterprise customer or residential, we're picking discrete markets. We're picking markets where there is no other one gig provider or there is no other fiber provider or where we think there's very, very unlikely that there will be in the future. We're picking those tier two and tier three markets that have a lot less competition. Think about a national wholesale fiber strategy, but then discrete enterprise and residential markets where we have the owned fiber network and we've got scale.
Right. We have just a couple of minutes left. I'd love to turn it over to the audience with any questions. Go ahead.
Just a quick one about your fiber network and its proximity to available power.
Yeah. Sure. The question was the proximity of our fiber network to power. Great question. It's our fiber network is focused on tier two and tier three markets, and that just happens to be markets that generally have less stressed power grids and the ability to generate substantially more power for new data center campuses, unlike some of the existing large data center markets or some of the large tier one markets. As a result, we are seeing, we think, a disproportionate share of hyperscaler builds in our markets. We've been somewhat cautious about our guidance about hyperscaler demand, but increasingly, the demand that we're seeing has been, I'd say, terrific. I would say as I sit here today, it's better than we've ever seen it. I do think in 2026, you're going to start seeing that in our numbers for the first time. We're very excited about that opportunity.
Time for one more. You.
Since you were in Washington, D.C. recently, can you talk a little bit about how you're viewing BEAD and where that might go and how it might impact you?
Yeah, the question was about BEAD and how it might impact us. We actually just announced, I think it was last week, that we won $156 million worth of BEAD funding, which, depending on your perspective, is a lot or a little. We had an opportunity to bid for substantially more, but we chose, as I mentioned in my comments about the build, to prioritize non-subsidized builds over subsidized builds. That is true of BEAD. We intentionally went after a smaller percent of BEAD, and we won a disproportionate amount of what we chose to go after. Our thinking is that given that our footprint is relatively protected already for the reasons I mentioned, it's more rural. We've already built a lot of fiber into the footprint. If we don't win it, others probably won't either, and those markets will be protected for us to eventually build fiber to later or use alternative products to get to that fiber, whether it be on our own dollar or some future subsidized program. We're very excited about what we won. Importantly, I get asked the question a lot about whether we care if the BEAD program has been slower than expected, because it was slowed down with the new administration. We're happy about that because that gives us time to push those subsidized builds out so that we can focus on the non-subsidized builds over the next several years, because that's where we think our dollars are better spent right now.
Thanks as always, Kenny. Great to hear your perspectives.
Thank you. Thanks, everybody.