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Steve Smith, CEO, ZayoWith the last chance to get your discounted ticket to PTC’22 upon us, Jason McGee-Abe caught up with Steve Smith to hear how his first year as Zayo’s CEO has gone and how the company’s transformation is shaping up.

Going Private & Becoming CEO
Zayo was taken private in a USD 14.3 billion acquisition by two of the world’s largest infrastructure investors, DigitalBridge and EQT, in March 2020. This came just three days before the World Health Organization first declared the COVID-19 outbreak a pandemic that saw the entire world, including Zayo staff, getting accustomed to remote working.

“Six months later, Dan Caruso and the investors called me and asked whether I’d be interested in running another company,” Smith recalls. “They said Dan would be willing to step aside if you’d be willing to come do this again, with the aspiration of building another high-growth story like you did at Equinix.”

Zayo’s new owners had identified Smith as an ideal candidate to run the company, with Marc Ganzi, president and CEO of DigitalBridge, stating: “Steve’s track record successfully managing growing digital infrastructure businesses while maintaining high levels of operational reliability and excellence is the perfect fit for Zayo as it enters the next phase of its growth.”

He tells me that there were only a few companies that he would have even considered joining. As he knew the company well, through its partnership with Equinix over the years and his good relationship with Dan, he decided to accept the offer. He says: “I knew that this company was a critical component of the digital infrastructure space as there’s no technology out there that’s going to displace fiber any time soon – it’s the speed of light. The foundation and immense network that was created here by Dan was amazing.”

Data centers, cell towers, and enterprises are all increasingly getting connected, he tells me, so Zayo was at an inflection point. “The owners decided that for the next chapter, they needed to bring on a different kind of leader and that’s what happened here. Dan and I are still very close and talk a lot.” Dan co-founded Zayo in 2007.

Caruso said that he was “pleased to hand the Zayo baton to Steve,” adding that “under Steve’s stewardship, I’m certain Zayo will solidify its position as the world’s leading provider of bandwidth connectivity.”

Smith joined Zayo from private equity firm GI Partners, which has been in the private equity and real estate investing business for over 20 years. Smith, who was a managing director at GI Partners, had been hired to help build a team focused on a third strategy: an infrastructure-focused investment team and fund that would invest in hard asset businesses within the data center, data transport, wireless access, and tech-enabled infrastructure spaces. GI had actually started in the infrastructure space and formed Digital Realty in 2004. Smith’s experience working within a private equity business has certainly helped with his relationship with Zayo’s owners, he tells me.

Prior to GI, Smith served as CEO and president at Equinix for over 11 years. He managed the company through high growth from revenues of USD 419 million in 2007 to around USD 5 billion in 2018. It became the clear leader in the Internet infrastructure sector and largest global data center platform in the world. Something else Zayo’s new owners would have taken note of is that Smith oversaw the successful extension of operations across five continents, 26 countries, and 52 metropolitan areas.

Zayo Next Generation (ZNG)
Smith joined Zayo in October 2020 when the whole company was 100% working from home, so I ask him how he settled into the role amid a global pandemic and remote working. He immediately responds: “It was certainly very different and has gone by extremely fast!”

“I took about 60 days to listen and learn, to talk to customers, employees, and leaders. We then decided to bring in a third-party objective consultant to conduct a review, so Bain & Company was brought in,” he adds. “I did have a couple of meetings in Boulder, which were face-to-face in small groups. But generally speaking, this was all done 100% virtually, including Bain’s eight-month project with us.”

When COVID restrictions eased, Smith took the chance to go to London and Paris to meet employees. However, about half of them remained at home working, which “was a sign of the times. By no means have I met all 3,000 employees as we haven’t been able to but I look forward to when we can.” At the time of this interview, Smith predicted a return to office to take place in the first quarter.

Smith hails this year as “transformative,” with a plethora of changes seen in one year at a company that became “very decentralized after 46 acquisitions over 15 years.”

Zayo Next Generation (ZNG) is what Smith calls Zayo’s transformation and it has seen many key appointments made. It has also seen the investors unload its data center business so it can focus on its core network business and customers with fiber, layer 2, layer 3, and transport services.

Zayo has made several relatively recent key leadership appointments to align with its centralization approach. This has included seeing Andrés Irlando join as president from Verizon to “run all the go-to-market.” Marty Snella, who was actually CTO/CIO at Zayo Group back in 2008, “re-joined a month before I did and is now our chief of operations.” Ginna Raahauge joined Zayo earlier this year as CIO. “The other big function is that we’ve brought all of our product and technology together, so I brought in Brian Lillie, who was my chief product officer, to run all our product and technology here.”

“Out of the top nine executives, including me, seven are new over the last 12 months or so, so think about that,” he states. This is a huge fundamental changing of the guard at Zayo. “What got us here, we are determined won’t get us to the next chapter and so we’ve got a new operating model,” Smith adds.

Smith says the aim is turning Zayo into a much higher performing organic growth machine going forward. “It was very much an inorganic growth story for 15 years,” he tells me. “The next chapter will include a little bit of inorganic growth around the edges, but at the heart of it is going to be fundamental organic growth.”

“So, for the next chapter, we’re working on fine-tuning our values and culture to put in the discipline and fundamentals to grow the company at or above market growth rates.”

U.S., Europe, and Asia
Zayo is very dense in all the big metropolitan areas in the U.S., with very unique long-haul routes that were accumulated through acquisitions. Smith says that the new team is very clear now about where the network gaps are so “we will still do tuck in acquisitions in North America to densify and strengthen the network.”

In Europe, which is “pretty fragmented in this data transport and the fiber-lit services space,” Smith believes there’s an opportunity to consolidate over the next five years. “We’re super interested in that with our very savvy investors: EQT and DigitalBridge. They’re digital infrastructure investors that buy separate data center, fiber, wireless, and tower businesses, so they know the world landscape and that means we’re super interested in being the consolidator in Europe.”

Smith stresses that for the next two to three years, Zayo will be laser focused on getting the organic growth machine going in North America and in its two big European markets: France and the UK. He adds: “We have a little bit of business outside of France and the UK, but we’re going to let that platform get deeper across Europe. And we’ll probably do that inorganically.”

“In a few years’ time, we may find ourselves fronting an opportunity in Asia and pushing the platform out there,” Smith reveals.

Industry Trends
It’s clear that companies around the world are digitizing nearly everything around them, so Zayo has a key role in helping to service that connectivity and network density.

Smith sees another wave of growth in cloud computing coming and sees Zayo helping on this journey: “We’re a decade plus into cloud computing with compute storage networking and it’s moving further out to the edge. The next wave of cloud is multi-cloud and hybrid. We’re going to be a big, active participant in that. As more things get connected to the Internet, this whole idea of the IoT, more things are getting connected. Communications infrastructure will play an increasingly important role.”

Smith foresees this next chapter unfolding, with hyperscalers going to need more connectivity and network densification. “As everything becomes more software-defined, one of the areas that we’ve dug into here is Software-Defined Wide Area Networking (SD-WAN). So, we’re investing heavily in that.”

“We haven’t done this in the past but don’t be surprised if you see Zayo doing some product capability acquisitions,” Smith says. “As we build the portfolio out, we could do an acquisition of a product technology capability that would accelerate something we’re building versus building it ourselves.”

As the data center world continues to evolve with the next level of connectivity, “we’re going to get really active in helping them build these fabrics.” Zayo is already helping Digital Realty connect its 290+ data centers with a new connectivity fabric that’s next-generation software-enabled.

Zayo is also looking at security and SASE, telling me: “That whole architecture is on the table now, although I don’t think we’re going to go off the stack and we’ll stay at layer 0, 1, 2, 3. We’re going to stay in communications transport and infrastructure, Internet enablement, with a little bit of security around the edges. That’s where we’re going to play and we’re going to be world class. Our service excellence with our network to be a differentiator. We’re going to have a high organic growth sales culture in the company.”

Servicing Enterprises – All Shapes & Sizes
I asked Smith to give the PTC Community a teaser of what we can expect from Zayo and he declared: “You’re going to see us become more active publicly. You’ll see more press releases on deals that we’re doing and routes that we’re building.”

“We are also building a new business that will help us address connectivity needs in regional markets like Denver, Seattle, Dallas, Phoenix, and Toronto,” Smith reveals. “Despite having fiber on and near some 37,000 lit buildings, which we accumulated through 46 acquisitions, we haven’t fully taken advantage or serviced that opportunity.”

“One of the new strategies is to deploy in six metro footprints over a quarter or two and then go deep on trying to leverage the opportunities when workforces return to those buildings by selling more capability into the companies within those buildings that are on or near our fiber. Companies such as Cogent do this and we’ve seen the opportunity there. It’ll be a brand-new business for the company and we’re going to get deeper into that space.”

I inquire how big he sees this enterprise opportunity becoming and Smith responds: “Over the next five years, we’ve got a plan to make it a significant portion of our revenue.” Historically, Zayo was often viewed as big pipes to big customers, including to wireless players and big hyperscalers. “That was kind of the mantra in the industry but we’ve got 7,700 customers and have a lot of small and medium-sized enterprise customers. The real future for us is exploiting and really leveraging all the enterprise industry variables, from energy and oil and gas to travel and transportation, to financial and retail etc. We’re going much, much deeper and going to help the digital transformation agenda at enterprises of all shapes and sizes.”

What the pandemic has certainly made us all aware of is the critical need to enhance and invest in enterprises’ digital operations. Smith adds: “This includes not only what their needs are in their offices, but the needs at home. There’s a big shift going on all over the world now with investors getting into the fiber-to-the-home (FTTH) space. Investors were certainly backing fiber-to-the-tower and fiber between businesses, but COVID-19 has accelerated this and also supported the increasing bets being made on FTTH. There’s going to be a lot of investment with governments getting behind it and big telcos too.” Smith hints that Zayo will too: “We will probably get involved in it around the edges, especially as our two investors are certainly interested in this space too.”

The Importance of PTC
Big, innovative topics are all discussed at this integral event that kickstarts everyone’s year in beautiful Hawaii and Smith is no stranger to PTC’s Annual Conference.

At PTC’14, while delivering his “Mapping the Future of Networks and Cloud Inside Equinix” keynote, he highlighted the belief and premise that the cloud computing model was the next big paradigm shift that we’re all going to experience over the next decade plus. He said it would be “very similar to what we went through with the mainframe to mini, similar to when client servers came about and mobile devices. This is real, irreversible, and we’re all going to experience growth with this. And how interconnection is going to be more critical in the future, especially looking at the next generation of connectivity.” He certainly wasn’t wrong there!

Fast-forward to PTC’20’s “Global Infrastructure Investment” panel, representing GI Partners and Flexential, he said that after 12-13 years of cloud being deployed in Tier 1 markets globally, we’re at the front edge of more secondary and tertiary markets being populated with compute storage and networking. “We’re headed towards more distributed compute storage and networking moving to the edge. It won’t replace centralized cloud but it will supplement it. There’s going to be a lot of opportunity for fiber companies, wireless businesses ahead of 5G, and more data centers.”

Looking ahead to January’s PTC’22 installment, Smith declares: “PTC’s Annual Conference is a critical event for us and we’re a big attender. I have been and gone to it for many years. Zayo will be at PTC’22 in full force.”

“The conference is a speed dating opportunity,” he adds. “It’s as good a conference that I’ve been to where you can maximize the number of meetings, breakfasts, lunches, and dinners. All the big communications companies are there from any segment, including the big hyperscalers.”

“You not only get lots of meetings arranged but you get to see the decision-makers of companies. It’s also early in the year, so you meet people that have just had their budgets finalized and are starting to make bets. A lot of decisions get made at PTC’s Annual Conference and you really make great progress early in the year by attending.”

Smith believes there will be increased excitement after not having it physically last year. “People are ready to come out and you’re going to see a lot of energy, excitement, decisions made, and a lot of relationships created and advanced very quickly in a very short period of time.”

“The timing of it is perfect. The audience they attract is perfect. Obviously, the venue’s perfect. I mean, who doesn’t want to go to Hawaii right after the holidays?! It’s pretty amazing!”

Join Steve Smith at PTC’22 and attend the center stage panel: Communications Infrastructure  Strategic and Investment Perspectives.

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