Dan Caruso has emerged from a period when, by his own admission, he had trouble sleeping at night. It was not that Zayo, the company he founded and still leads, was in trouble, but he felt that something had gone out of it. So he replaced most of his colleagues at the top, people he’d started Zayo with. “It was hard – coming to the realisation that we were going to have to rebuild a lot of our senior team,” he says.
The newcomers aren’t significantly younger, and many of them – like those they have replaced – used to work with him in companies such as Level 3 Communications. But, having gone through the process over the past year or so, he says, “the energy, ambition that Zayo always had has returned. The zest has returned. Let’s take that to the next level”.
He’s surprisingly critical, both in a speech he made to Capacity’s Metro Connect conference in Miami Beach in January and, the following day, sitting at our booth at the same event. “We had to rebuild the executive team. It was beginning to stagnate,” he says. Zayo needed a team “that was looking to the next five years”. There was no animosity, he suggests. “We have a close relationship. Some of them made a lot of money. The core group made $10-$20 million or more than that. And they had a lot to show for it – new houses and new cars.”
Now, “most of them are on the golf course, one way or another”. Some are “on a couple of boards in some nice areas”, he adds. “They’re all a very talented team – saying maybe they should do something like Zayo.”
The new team features people such as Matt Steinfort, who became CFO at the end of 2016. He used to work at ICG Communications and Level 3 Communications – as did Caruso. There’s Jack Waters, the CTO, who was CTO of Level 3 Communications for many years. Andrew Crouch was appointed COO in April 2017, having previously been Level 3’s regional president of Europe, Middle East, and Africa.
“Jack Waters started at Level 3 a month after I started there,” says Caruso. “The reassembled team were people that worked together.”
It didn’t always work smoothly. Ed Morche, formerly Level 3’s group VP of sales, became Zayo’s president of sales in May 2017, only to resign to return to Level 3 a few weeks later.
And the new chief revenue officer is Phil Mottram: he’s a Brit, like Crouch, but hasn’t worked for Level 3. Instead he’s had senior positions at Vodafone and used to head CSL, the Hong Kong mobile operator, when it was owned by Telstra. Before that he was at BT and AT&T.
Thinking at scale
“Now things have changed pretty dramatically,” says Caruso. “Now 2018 is just about simple execution.” What’s new about the new team? “They’re more global, more used to thinking at scale.” Mottram managed 3,000 people at CSL, he adds. The newcomers can handle a “more complicated sales strategy”. Zayo is “much bigger now, with more business units. It’s more global. Now we go outside the boundaries of where we have networks – to bring customers to Hong Kong, Sydney, Brazil.”
One of the significant recent changes is a move into software-defined wide area networks (SD-WANs). “We have a few businesses that have to do with connectivity at both the Ethernet and IP layers, so we have a WAN business.” This “serves customers that are on our target list that have more locations, so the WAN could take different forms. It could be MPLS, IP VPN or Ethernet-type WANs”, says Caruso.
“You also have the category where our key customers either connect to multiple public cloud environments.” They may want to connect to Amazon Web Services, Google and other cloud services. “That’s another area where the SD-WAN type functionality comes into place,” he says.
“We view it as first and foremost having command and control of your infra-structure and your data. It’s paramount you do it in that way. How you turn up and turn down capacity, take advantage of automation – that’s where SD-WAN comes into place.” He adds: “It doesn’t necessarily change or expand our aspirations. It’s just the progression of getting better and better at serving our key customers.”
When Zayo announced its SD-WAN plan in January, the company said it was “an integrated extension” of its fibre-based IP/MPLS backbone offerings “that makes enterprises’ networks easier to manage, improves performance and enhances reliability and failover options”.
As part of Caruso’s reorganisation of the company, with a new management team, he has split the company into five business segments, each operating globally.
The carrier segment is the biggest, providing about 48% of Zayo’s revenue. Below that there is the finance and professional services unit, with 16% of the revenue; media, content and commerce, with 13%; and cloud, software and infrastructure, also with 13%; and then public health and utilities with just 10%.
But in an earnings call earlier in the year, Caruso reveals that just 10 customers – five global carriers and five webscale companies – produce 26% of the total revenue. He didn’t identify the customers, of course, nor put the carriers and the webscale companies into any sort of order. Zayo’s top 100 customers generate 57% of its total revenue, he added.
Opportunities in finance
In that same conference call he said there were “big opportunities” in the finance sector, set up in 2017. “We’ve had multiple deals in Europe and the US with the same customers. It allows you to get deeper and broader with that vertical.”
He added that 2017 “was a transitional year” for Zayo. “We developed this great platform that has global significance as the largest independent provider of communi-cations infrastructure, but we needed a team of people and an organisational approach that was going to take us forward not just through 2018 but for many years to come. We accomplished a lot in 2017 to position ourselves for long-term value creation.”
So let’s turn back to Metro Connect, and his “reflections of an anxious chairman” – the term with which he introduced his keynote speech. Zayo has continued to acquire companies over the past few years, despite Caruso’s anxiety.
One of the most intriguing acquisitions – and possibly his best recent bargain – was Spread Networks. If you’ve read Michael Lewis’s book, Flash Boys: A Wall Street Revolt, which came out in 2014, you’ll recognise Spread Networks as the dead-straight fibre from New York to Chicago that was designed to cut latency for high-frequency traders.
The fibre – 827 miles or 1330km – allegedly cut the latency from 17ms to 13ms by being ultra-straight, to give traders connected to Spread Networks a 4ms advantage over their rivals. Lewis says in his book that the project cost $300 million. Zayo bought Spread Networks for less than half that: $127 million. Not so much high speed, as be patient and it’ll come to you. “We now have a business unit called Spread Networks by Zayo,” says Caruso. “We’ve just announced a cable from Minneapolis to Omaha.”
He’s looking for other acquisitions – and Annette Murphy, the company’s former SVP for fibre solutions, who became managing director for Europe in Caruso’s great management reorganisation, will have a role in that. “We’re actually looking in Europe” for potential acquis-itions, he says. “Annette has a really strong knack for finding opportunities. She is working with Ian Cunningham, the head of sales in Europe.”
Cunningham joined in January this year after a year at – surprise – Level 3. He spent the previous three years at credit information agency Experian. Before that, though, he was at Vodafone and BT.
Zayo is looking to extend the network “to Hong Kong, Tokyo, Singapore, Sydney”, says Caruso. And apart from the big potential acquisitions the company is working on, they are looking for small gap-fillers. “We call the small ones tuck-ins,” he says. “We like tuck-ins. I want to do lots at the same time.”
And, having parted from so many former colleagues at the company, is Caruso determined to stay strong and stable in Zayo? “I don’t have the inclination to take my money and go off,” he smiles. “I don’t want to go and play golf. I’m not ready to hang up my spikes.”
But, he adds, “I should have less of a hands-on role. I want to get to the point where Andrew and Phil are driving the business.”
