Great. All right. Thank you very much. Appreciate everybody being here. My name is Frank Louthan. I'm the senior telecom analyst here at Raymond James. We're very happy to have Uniti Fiber back here again this year. Another very interesting story we've talked a lot with investors about. Why don't we, you know, start introduce yourselves, tell us a little bit about Uniti Group and kinda where you fit into the space, and then we'll jump into some questions.
Yeah. Sounds good, Frank. Thanks for having us here. I'm Bill DiTullio. I'm the head of Investor Relations, and I also am part of Treasury Department at Uniti.
Greg Ortyl, EVP and President of Strategic Accounts at Uniti.
All right. Great. Talk to us a little bit about, explain kind of what you are, what you do, kind of where you fit into the telecom space, in the sector there.
Sure. I'll start off, and I'll let Greg talk a little bit about it as well. Uniti Group is today a premier insurgent fiber provider both in the residential and commercial enterprise space. Back in 2015, Uniti was spun off from Windstream. At that time, Windstream was Uniti's only customer. The strategy was to continue to grow and diversify through being several platform, fiber platform acquisitions. Back in 2016 through 2017, Uniti made several fiber acquisitions. Actually, Greg and I both came from Uniti's first acquisition of PEG Bandwidth. The goal was to create a metro dense fiber platform company, which you see today, which is in the southeast. The goal again was to continue to diversify. We were two separate companies, Windstream and Uniti.
Uniti owned the network assets that Windstream leased back from us. You fast-forward to last year, or I'm sorry, in 2024, we announced that we were recombining the company and merging to back together. There were several reasons why. One was Windstream was now focused on building out Fiber to the Home. Traditionally, they had been the ILEC in those territories. There's about 4.5 million homes that they have in their footprint that were currently served by copper, they were going under this transition to replace the copper with fiber, very analogous to what we were doing at Uniti in terms of building out fiber too for enterprise and wholesale. They also had a wholesale business.
We had a wholesale business. We thought there was a lot of industrial logic to bring those two companies together. That's what we did. We announced that transaction in 2024, and we completed it in 2025. Today, we are now not only a, we have a residential business, which we call Kinetic. We have a segment called Fiber Infrastructure, which Greg leads up the sales for in terms of strategic accounts for wholesale. We also have an enterprise business too where we sell Dedicated Internet and Waves and other types of services to businesses within 30-plus markets in the, mostly in the Southeast. Our third segment today is Uniti Solutions, which is Windstream's legacy enterprise business that we referred to in the past as Managed Services. That segment isn't really...
We've talked about that not being really strategic or core to our ongoing strategy, but it does generate, you know, really good cash flow as well. We're really focused on terms of investing in the growth at both Kinetic and Fiber Infrastructure while also trying to take the strategic stuff that's within Uniti Solutions and try to cross-sell that between both Kinetic and Uniti Fiber. I don't know. Is there anything you wanted to add?
What is there to add? I mean, you just nailed everything. You didn't leave me, even crumbs. No, I'll tell you a little bit about my business unit, which is the Fiber Infrastructure business. As Bill mentioned, we are a fiber provider, a Fiber Infrastructure provider with a core focus in the central U.S. and the west, southeastern U.S. We provide dark fiber to customers, other telco customers, cable, hyperscalers, global accounts, Federal Government, and we provide lit services, think of Dedicated Internet Access, Ethernet, or Wavelengths to those same set of customers. On the lit side, on the managed side, if you will, we provide those services nationwide across a backbone network that we call ICON.
It's a fun time to be in the space with everything going on in the AI front, which I'm sure we'll get to later, Frank.
Yeah. Why don't, why don't we stick with that? On, on the AI side, you guys have been a participant in some of that. We've seen, everyone's very familiar with the Lumen deal that they did two years ago. You guys have done some adjunct business. You reported Monday, you disclosed some additional AI builds similar to that you guys are capturing. You know, talk to us about some, you know, the advantage that you have and why are you winning those routes? I think when I talk to investors, they're often kind of surprised at the breadth of your capabilities there. What is it? How are you winning those routes? How are you getting that business?
That's interesting. We had a map, and you can see it on our website. We have very dense fiber assets from Minnesota, Illinois, south through Texas, and then east through Georgia, Alabama, South Carolina, Florida, and everywhere in between. When there are, You guys probably know there's a race out there for power, and the hyperscalers will place those AI machine learning facilities where they can find accessible, inexpensive, relatively speaking power. They're investing $5 billion, $10 billion, $20 billion in a lot of cases. What they need is a reliable partner who has experience delivering, building and delivering fiber. In that central southeast corridor that I just talked about, we've been building fiber for over two decades back to our legacy companies, right? We have.
It's a core competency, building fiber in that footprint. When, you know, it's public knowledge, when a Meta drops a $20 billion AI data center in Holly Ridge, Louisiana, they're gonna want somebody that's very familiar with building fiber in Louisiana, working with the municipalities, understanding the permitting process, the geology of actually building, and somebody that's done it before, because when you're making that kind of an investment, you don't wanna go with an upstart. You don't wanna go with somebody who's just who's never done big fiber builds before. We have had tremendous success in that footprint, either within or adjacent, I'll say, to that footprint. It's not just dark fiber. We're seeing tremendous demand for lit capacity, particularly on the wave side.
We have a request that we're working on today, for example, in Texas, for 20 terabits of capacity. Day one with a capability to go to 64 terabits. Not dark fiber. This is lit capacity. We have a huge national lit capacity network that we can provide those services across that ICON network that I talked about before. It's, it's just a great. It's a fun time to be in the space, I'll say. Yeah.
Yeah. One of the interesting things that, you know, I've noticed from, because I've been doing this too long, is, you know, the hole in the southeast from the old fiber networks that were all built 20-something years ago. Which I think it gives, offers an advantage for you guys. Talk to us about the relative competitive, relative amount of competition you see in your markets. I think that was part of the discussion Monday on your earnings call about, you know, the returns you're able to get because you have some existing fiber and so forth in some of these places. Talk to us about the competitive landscape there and what advantages you have.
Yeah. Kenny Gunderman, our CEO, made that point on the earnings call, as you mentioned, Frank. In the southeast, we do have these dense fiber networks, and oftentimes what we'll see, we were talking about this this morning, is for the hyperscalers, it is speed to market. The last thing that they want is turning up a $15 billion data center with no connectivity. Oftentimes what we'll see is a need for maybe 24 strands of fiber or 48 strands of fiber just to satisfy the day one needs. In the meantime, we will overbuild our own network with an 864 count fiber, multiple conduits to satisfy the long-term need at that data center.
To your point, the southeast is, does have some moats around it from a competitive aspect. You know, some of the Lumens, the Zaos, the Crown Castle fiber business, don't have the density, anywhere near the density that we do, you know, from Texas to Florida. We've been able to take advantage of that here recently with the hyperscalers. A key point there, though, is it's not just greenfield fiber builds. This isn't all a greenfield fiber build play. There's absolutely demand for existing infrastructure as well. I gave you the example where we're selling maybe 24, 36, 48 strands to satisfy a day one need.
There's other cases where we've sold long-haul dark fiber, you know, 12 to 14 strands, for example, on a five-year lease for several hundred thousand dollars a month. Again, it's temporary for the hyperscalers, something to get them by until somebody else pulls more fiber. That's an example of where, you know, Salt Lake City to where was it? Salt Lake City to Portland. You know, we sold 12 strands to a hyperscaler to kind of tide them over while somebody like a Lumen might be out there doing a bigger, larger overpull that's not gonna be ready for three, four years.
You, you mentioned, you know, the capacity in getting the data off. Sometimes we point out to folks that you gotta get the data in and out of the data center. The wavelength business has come up a lot in the sector and in our survey work and talking to doing checks out there. You're a player in that. Talk to us about the wavelength business. How, how are you well suited for that? Which is, turns out to be very well suited for the type of traffic and the large volumes traffic for AI. How, how are you participating in that? What's the outlook there?
Yeah. Windstream, who we merged with here August 1, last August 1st, had a nationwide wavelength network that we now own that we refer to as ICON.
Windstream's been in the wavelength business for many, many years. They've built up a decent business there. Frank, you know, we have very small market share, relatively speaking, to some of our competitors, Cogent, Lumen, Zayo, et cetera. Windstream had been capital constrained from the days when they exited bankruptcy to the time that we acquired them. What we've done is looked at that business plan, the wave business plan, and have made strategic investments either opening new data centers that are not already on net or upgrading existing routes for more capacity, being more proactive. Very different from a dark fiber sale. When you sell lit capacity, a wavelength, the customer's generally expecting delivery of that wavelength in 60 to 90 days. They can't wait 6 months.
Oftentimes, Windstream in the old days were losing deals because they had not proactively invested in that particular segment. We're proactively investing in this segment. We're additionally lighting new routes. We've already seen a tremendous uptick in our wave business just since legal day one. Again, bringing the two businesses together has allowed us the better financial flexibility, taking a more strategic long-term view on some of these wave deals. The last point I'll make on the wavelength business is the neoclouds that are out there and emerging today do not have the resources, the human resources, the technical expertise to manage their own network. In most cases, those providers are electing waves instead of dark fiber.
The hyperscalers, the top, the Big Five, are capable of managing, operating, owning their own network. They've been doing it for several years. The neoclouds, you know, they're relatively new, starting up. They don't have the network talent that they would need to manage that network. That's when they come to us and look for more of a managed services such as wavelength. That's where we're seeing huge demand here in the last, you know, 6-12 months.
All right, great. All right, let's talk a little bit about the Fiber to the Home business and what you're doing there. Took over Windstream. They were building at a relatively slow pace. You've made a lot of key hires in that business, really investing there. Talk to us about the pace of that build and which success you're seeing with customers as you're bringing that product to market?
To your point, Frank, when we acquired Windstream, you know, we took over Kinetic, the fiber to the home business. There's about 4.5 million homes in Kinetic's footprint today. 1.9 million of them are served with fiber, and we have a target to get to 3.5 million homes by the end of 2029. The focus really between now and through 2029 is investing in replacing the copper, existing copper network with fiber. We're overbuilding our own footprint. We're not really going outside of the existing Kinetic footprint today. We're just overbuilding the existing copper with fiber. We have about 535,000 fiber subs today.
In the fourth quarter, we hit a key milestone of where we now have more consumer fiber subs than DSL subs for the first time, which is great. We're making really good progress on there. Our penetration rates today are approaching 30%. Our target is to get to a 40% penetration rate over the long term. I think we're making really good progress there. If you listen to our earnings call, you heard John Harrobin, who is our President of Kinetic, and he's really built out this team. He, you know, he came from Frontier.
He came from Verizon before that, he's really building out a team with best-in-class talent that's coming from a variety of different companies, to really build out that Kinetic team and accelerate that growth. In the short time that he's been in that seat and had his team in place, we're already seeing meaningful improvement in churn. Our fourth quarter was our second-best quarter on record in churn. We had, you know, some of our highest gross adds ever, net adds. We're making really good progress there. When he was speaking on the call, he threw out about five or six different stats that were record-breaking. Really good progress on the Kinetic front. That is going to continue.
That is where you'll see the bulk of our CapEx being spent over the next, call it 2-3 years as we build that out. We're primarily in tier two, tier three markets, so these are rural suburban markets. They're not super competitive. Our biggest competition in those markets is the cable providers. About 60% of our footprint is a major cable provider, so think Charter, Comcast. There's another 20%, which I would call more local regional cable providers, and then the remaining is there's no competitor. The other question we get sometimes asked is what's your overlap with overbuilders? I would say that's, you know, around 20% today. It is highly concentrated in two markets, Lincoln, Nebraska and Lexington, Kentucky.
If you were to take those two markets out, there is still some overlap with the overbuilders, but not much. These aren't highly competitive markets, but at the same time, we want to accelerate our build
That's one of the reasons why you're seeing us really make this investment, not only because it is good returns, we're seeing really good RRRs, but we also want to make sure that we widen that moat to prevent any other overbuilders coming into these markets. I think we've been successful to date, and we really feel good about the plans going forward there.
All right, great. Just to kind of for folks in the audience, that may be a little bit less familiar, what is the success with Fiber to the Home? What are customers looking for? How do you compete against cable? Is it price? Is it what exactly is attracting customers to you guys, and how are you taking share?
Yeah, good question, Frank. I think, you know, what we're putting in in terms of Connect is a pure Fiber to the Home product, right? Where cable is Fiber to the Node and is coax. You are getting true 1 gig download and upload speed. It is a, it is a really premier, superior offering, we think, to other technologies, such as cable, fixed wireless, and even satellite. You're getting really true 1 gig throughput. In terms of price, you know, again, it's gonna be market by market, but our overall ARPU today at Kinetic is around $76, and that doesn't include the, you know, $11 or so for the modem rental. We think we know where we're pricing that product today. John and his team are really taking a bottoms-up approach on that pricing.
In different markets, again, there'll be introductory pricing too, right, to try to drive further penetration interest. We don't wanna, you know, we're not looking to just keep pricing people up too. I mean, we have seen ARPU growth historically be double digits, you know, 10%+. This past quarter it was 5%, right? We've said longer term, we expect ARPU to be, you know, growing in the low, low single digits, right? We think we're pricing the product appropriately. The other thing that we're looking at is adding more value-add services. You know, outside of that modem rental, the only other thing we really have today is voice and internet security.
John and his team are looking at other value add services that we can add to the overall bundle to make it more sticky. I think you'll see more to come on that, and I think he alluded to there's probably be more to announce in the coming quarter or so. The last thing I'll say is the other offering that we have is we don't have an MVNO option today, but we do have a wireless bundle with AT&T, where if you're a customer of both, you get a $20 discount on your bill. While it's not a full MVNO option, we have seen great success with that. In fact, it's helped reduce churn by 50%.
A smaller part of our base is on that today, but it is growing pretty rapidly. Yeah, I think the, all those things together, with kind of, you know, steady price increases, transparent pricing, superior product, really true fast speeds, you know, I think sets us apart from the competition.
I think one of the other advantages you have on the competition side is for whatever reason, you sort of an anomaly have less cable exposure than most of your peers. The math you did, you can maybe approach 80-ish% of your homes passed or high 70s or something like that, relative to some of the other ILECs that are more in the 60% range. What sort of advantage does that give you longer term, and how do you where do you think of, you know, getting you that 40% ultimate penetration? How much of a factor is that?
Yeah, I think definitely the markets that we're in allows us to increase that penetration. Again, we have a chart in our earnings materials that shows you that we're now getting penetration rates in year ones on the latest cohorts that exceeds the three-year penetration rates that we were getting on cohorts from three years ago and even year two cohorts from two years ago. We are seeing meaningful increase in penetration. I think when you're in those tier two or three markets where it's not hypercompetitive, you don't have to be irrational on pricing, and as long as your service and your product is meeting the customer needs, you should, you know, keep them for a very long time.
I think that is again the deal. I mean, what we're really focused on is converting those DSL customers that we have today that are in our markets, building fiber, getting them over to Kinetic, getting them a better experience, getting them a, you know, a more reliable experience with fiber, because fiber is a better product than copper. We also don't need to be irrational about our pricing or our go-to-market strategy, given that we are in less competitive markets. I think it allows us, again, not every market's equal, right? John and his team are taking a very strategic, you know, surgical approach in how they're doing this. In certain markets, we'd probably be more aggressive with pricing than others based on the competition.
It's really just 2026, one of the reasons, you know, you're seeing some of the margin at Kinetic be a little bit lower than it historically been is we're making real investments there, right? We're investing in people, we're investing in the marketing, we're investing in systems to make it a better overall experience for our customers. I think that's going to set us up in the long run, Frank, to achieve that 40%+ penetration rates. Hopefully, you know, in the next five years, we prove that to be conservative. We'll see.
All right, great. Got a couple more questions, and we'll see if we have some from the audience. On the fiber construction side, you're in a two-front war in this race for fiber. You're building it on the home on the residential side. You're also building it for the long haul, and medium haul fiber. How are you fit for labor and materials? Yeah, I think it's a question again from investors. How does some of your scale assure that you will have the labor and materials that are available? What assurances do you have from your suppliers? Is any risk there to your growth plans?
Yeah. The short answer is we're not seeing any really impact to our supply chain or labor. On the supply chain, you know, again, for fiber and even equipment, we plan well ahead, right? We expected that there could be, you know, with just going through COVID too, we saw elongated supply and chain delivery times. We learned from that and we even planned back then to make sure we had enough fiber and enough equipment on hand to meet our needs. I think we've planned very well. We work with third parties very closely to not only locking pricing, but locking commitments levels for fiber and equipment. I think we've done a really good job in planning ahead.
I would say, you know, over the next year or so, I think we have what we need to fully deploy our build plan and meet the needs there. Again, on labor, we're not seeing any labor shortage in our markets. We primarily, again, operate in the southeast market at Fiber Infrastructure and again, the Midwest for some of Kinetic as well, and Northeast. Overall, we are not seeing a labor shortage. About 90% of our fiber build today, both on combined with Kinetic and Fiber Infrastructure, is being outsourced to third parties. Again, one of the reasons we did that at Kinetic is we used to have this internal crew, and we still do, that does the fiber build.
Since we are accelerating that right now, we're looking to do 400,000 homes plus a year, ± a year.
What was that run in the last couple of years?
You know, like a hundred something thousand. It was, like, a much lower number than that.
All right.
Yeah. It was using internal crews mostly, right? To do all that. Now that we've really significantly ramped that up, it's gonna require external crews. John and his team have done a great job of securing those third-party vendors. They would be names you would recognize. Locking them up in contracts. We feel good about that in terms of the, not only just the, you know, the pricing, but also the availability of those crews in those markets. The same thing on Fiber Infrastructure. We're utilizing a lot of third-party crews for that too. Again, we're not really seeing an impact on either front.
I think it's critical from a supply chain perspective to have a really well-built out diversity of suppliers. We're not beholden to one or two fiber suppliers or equipment providers. That's certainly helped because the demand. It's unprecedented demand, right? We're seeing it, the fiber guys are seeing it, the equipment providers are seeing it. Just trying to get ahead of it, as Bill said, as much as possible, super critical. Having the right partners that you've treated well for many years has helped as we've gotten into this high demand cycle.
All right. Great. Last question. We'll see if we have this in the audience. Talk to us about M&A. There's been a lot of M&A in the space, larger providers buying some CLECs and fiber companies. You know, how do you look at M&A both on the as a buyer and as potentially a seller? Any, how do we think about that?
Yeah. I think, you know, again, there's only so much we can say on that front, but I mean, we've always talked about being a willing buyer and a willing seller, and there's things we look at all the time. I think the way that we've broken out our business into different segments, Kinetic, Fiber Infrastructure, and Uniti Solutions, each one of those could stand alone. We've also talked in the past that, you know, the convergence of wireline and wireless is real, and I think you're seeing that be reiterated not only with the transactions that have happened, but also commentary from some of these large wireless companies you're talking about. You know, They're doubling down on it and it's real.
We've talked about in the past, there could be a very, a lot of industrial logic for Kinetic to be in the hands of the wireless, one of the wireless guys, and we think Kinetic would fit in very well with any one of those. Again, you know, can't really say much more on that. Again, you know, we think there is, there is industrial logic there. Again, we because he's looking for somebody to not only buy Kinetic or could buy in fiber infrastructure any, you know, combination of those segments.
All right. Great. Any questions from the audience? No. Well, maybe, you know, Bill or Greg, either one of you guys.
Yeah.
Oh, got one? Yeah, go ahead.
I'm just trying to think in my head about this heuristic model for thinking about your business. You talked about $76 in ARPU. You talked about a 30% penetration rate. You didn't really give a churn number, but you mentioned that it's pretty low. What's the cost to build and how is that trending?
Our cost to pass today, we gave this on our earnings call, is between $900-$1,000 per home. Historically it has been much lower because again, we used internal crews. You went after the lowest hanging fruit. Now you're building out further, you're using external crews to ramp up. Again, I think going forward when you blend in the whole build, it's probably gonna be between $800-$900 per home, which when you compare that to the industry, it's a very favorable comparison. Even though it has ticked up some, it's still very favorable. You know, the other thing that we're doing when we're building out is we're being, again, strategic about this, and this goes back to John and his team that he's building there.
It's not like we're just building out blindly to homes. We're looking at, you know, potential MDU opportunities, so multi-dwelling units. That's not something we do today, but we could do in the future. There are also businesses and enterprise customers within Kinetic markets, right? When we're building out to homes, if we can pass some of these, business parks or other things, we may look at that too, because that could drive further lease up in the future. I think we're being really strategic about it, and when you look at the incremental cost, I think the ROI you'll get on that over time will far outweigh that incremental cost that we're putting in the ground today.
All right. Great. Thank you very much. That ends the time. Really appreciate it, guys. This is very helpful. We've got a breakout session after this for anybody that wants to join. Thank you very much.
Thanks, Frank.
Thanks, Frank.