Who do Telus, AT&T and Verizon use for Fibre Optic Network Installation? Lite Access Technologies Inc. (CSE:LTE)
When AT&T (NYSE:T), Telus Corporation (TSE:T) (NYSE:TU), and Verizon Communications Inc. (NYSE:VZ) install new fibre optic infrastructure, who do they call to put the fibre cable in the ground? Vancouver-based Lite Access Technologies Inc. (CNSX:LTE).
That’s because the company’s proprietary ‘air-blown micro-duct’ systems are cheaper and faster than incumbent technologies. We chatted with CEO Michael Priest on the phone recently about his company’s bright future.
[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with Michael Priest:
James West: Michael, thanks for joining us today.
Michael Priest: Thank you for having me, James.
James West: Michael, can you give me an overview of exactly what Lite Access Technologies does and what is its value proposition for investors?
Michael Priest: Let’s go back. Lite Access Technologies has been in business for over 10 years. We believe we are the world leader in air blown and micro-trench technologies. Again, the pure play or the value proposition for investors is that we are the only pure fibre optics play on the North American stock market today.
Basically, if an investor was looking to get into the fibre optics boom, whether that be fibre to the home, or they’re hearing about the Googles and these sorts of things, Lite Access is definitely something that they would want to look at. Again, our proprietary method of air blown fibre is not only less expensive, but is much quicker to deploy, and of course, environmentally friendly, which is a huge buzzword sort of, now.
What we’ve done is, we’ve taken, we’ve brought the whole thing together, James. We’ve taken not only the design, the engineering, the permitting, but the technology itself, the micro-ducts, the fibre, the sundry items, and including the deployment. And most importantly, and really what’s really taken to the forefront in the last couple of years, is the reinstatement: how the roads are reinstated is absolutely paramount. That’s what everybody sees at the end of the day, when the job’s completed.
James West: So just let’s clarify a bit: you say air blown fibre optics. What exactly do you mean by that? Is that like a fibre optic line that somehow is distributed through forced air, or is it – I don’t quite understand what you mean by that.
Michael Priest: No problem. It’s a great question, and we do get that. It is what we call an air blown system, it’s actually air assisted; it’s using a set of wheels. On our web page there are numerous pictures of the machines, there are a couple of different manufacturers. What we do is, we’ve taken technology that has been used 30 years ago by British Telecom and we’ve shrunk it down into this, again, calling it a micro trench inside a micro-duct.
Those ducts are placed within the cut, or within the trench, and then an air system is hooked up to this machine called a breeze machine about the size of a microwave oven in someone’s home, about that size (obviously a different technology). Air is hooked up to that, the wheels, the fibre comes in, and grabs that fibre with the air and pushes it down the tube, filling it up.
So probably one of the biggest things for people, I hope, to understand or take away from this, is that you can add fibre at any time through the micro-ducts. Now what this allows you to do, most importantly for municipalities or anyone who’s rolling out a network, is you want to reduce your capital costs. Obviously, the cost of deploying networks is, there’s the construction component, the permitting component, the actual products themselves.
But if you are allowed to add fibre at any time – so let’s say that we need 12 strands Day One, between the campus and City Hall, and that’s what you’re building. No problem. But then a couple of years from now, you want to put camera systems in for surveillance, for video monitoring, for police, whatever it happens to be; you’ve got spare tubes there, you can then blow in additional fibre at that time. So it really allows you to be what we call ‘future-proof’. That’s what air blown fibre allows you to do.
James West: Okay. So you’re basically the most efficient way to deploy original fibre as well as expand fibre systems in terms of the actual fibre cable itself?
Michael Priest: Absolutely.
James West: Okay, great! So tell me: who are your customers, and how do you make money?
Michael Priest: We have customers around the world. Lite Access again, going into an 11th year now, we have projects and partners and deployments from London, England, to New York City, to Vancouver, to Alaska, to Hawaii and Guam, Malaysia, Australia, almost every state in the United States, and to Mexico, Panama, South America. So our customers range from the Bells – Bell used us for the Olympics, for example. Fibre was used at the World Cup for FIFA. Companies like AT&T, Verizon, school districts, cities like the city of Port Coquitlam, the City of Vancouver is using it as well.
So it really varies. Again, in the beginning, a lot of campuses were quick to come on board because you could get the permitting; you typically dealt with one landowner, if you will, and the university would then tie their campus together. From that, it expanded to governments, cities, and again, the large telcos, and even developers now, with the fibre to the home. We recently completed a project in British Columbia for a large telco here, for fibre to the home, and that was done up for one developer tying approximately 150 units together.
James West: I see. So is fibre optic cable, then, the future of connectivity to, say, the last mile to homes as opposed to co-axial cable or five-pair telephone lines, ADSL?
Michael Priest: Absolutely. I mean, to say that fibre is going to be at everyone’s home who’s listening to this, you know, that would be a bit of a stretch, absolutely. What’s happening today is, we’re getting fibre pushed out to what’s called a pedestal. If you live in a subdivision, you’ve probably got a green box there somewhere hidden behind someone’s hedges, in front of someone’s home. They’re pushing fibre out to that, it’s sort of Phase One; there are some places where that’s been done, and then of course, the next step is fibre right to your home.
But what we’re seeing right now is a lot of fibre to the MDU [‘Multi-dwelling unit’ – ed] When you’ve got concentrated areas of a large number of people, you’ve got 100,000 people within a five or 20-block area, it’s obviously makes sense financially for the developer or the telco or cable company to go in and take a fibre to a building where they can get 100 customers rather than take fibre to a home where they may only have one client at that point.
So there isn’t one way that it’s being done; there are numerous ways, numerous applications. You mentioned the word, James, last mile, and that’s what was part of our slogan, sort of, at the beginning: it was really the last mile. There was lots of fibre between Vancouver and Toronto, New York and Los Angeles, but if you think of that as a highway between those two spots, how do you get off of that highway, and how do you come from that highway and grab that strip mall or that housing complex? And that’s really what the focus of ours was at the beginning. And now it’s expanded out from that to include full fibre to the home deployment, full campus deployment, network range in cities where we’ve got 10, 20, 30, 40 km of fibre. London, England, we have 35 km of fibre around the city of London tying the financial district together. I think on that particular network, there’s probably about 50 buildings on there.
So it really varies. Again, the partners vary as well, from telcos to cable cos, to private citizens, putting their communities together. I was at a show recently and a community down in California has banded together and they’ve decided to put their own money towards this venture, so we’ve been helping them with the design, and it’s going to be totally privately funded. They’re going to drop it off at the ring.
James West: What’s your gross margin?
Michael Priest: That’s an interesting question. We have, again, micro-ducts are the bread and butter of Lite Access; fibre optics that go inside that, and sundry items, are less of a margin for us. For sure the micro-ducts are the bread and butter of Lite Access, again, with multi-duct systems, and we create custom products for clients and stuff as well. So that would be the bread and butter. Again, the margins on that vary anywhere based on volume, based on where the client is, based on the size of the project or the scope of the project, are we going to be working with them on designing and permitting, are we going to be providing tools, are we going to be helping them put it into the ground and project manage.
So that does vary. I mean, if I sold 100m to somebody for a one-off project, then we’re probably making 75 percent on that, but then you get into larger projects, it’s about tying it all together and having a partner for a long period of time that’s going to come back and require more fibre from us and continue to expand that network. That allows us to have recurring revenue, almost, if you consider that the growth of the network over time. Most people don’t start with a 30 km network; they start with 1 km, and then people near them get fibre envy, so the next community wants it and the next community wants it, and so those are where we try to – we’ve got many, many clients that we’ve had for five, six, seven years, and they continue to expand the network.
James West: Okay. So is Lite Access Technologies a profitable company at this point?
Michael Priest: Yes. The numbers that will be coming out by next quarter’s end in a month – our year end is at September 30 – obviously there was a large expense with going public, as I’m sure you and your listeners are aware, so we’ll definitely take a hit for the acquisition of DSG, and that is now complete. I’m happy to say that completed on Friday. So that is, we are now a full construction, deployment, project management company. It also brings to us a patent pending on a blade for the deployment, which again, I mentioned at the beginning, is crucial for being able to deploy micro trench and doing it properly.
So yeah, by year end for sure, we’ll definitely see the numbers that we were coming out at a million and a half there, and then with the construction component of that adds about another 2.2. So for sure by the end of the year, we’ll be in the $4 million range, with lots more coming into play now.
James West: Okay. And so annual growth, what’s your forecast for, say, fiscal 2016, ’17?
Michael Priest: Well we’re targeted right now for 50 percent growth in 2015, again my year-end being September 30. And I’m expecting us to hit 110 to 120 percent growth for 2016, 2017. And all signs are pointing to that coming through, especially now with the deployment aspect of it. We have numerous customers that want us to take over the entire project, and I don’t know if I’ve mentioned this already, but in a project that is, let’s say, a $1 million fibre optic project, approximately 150,000 or 200,000 of that is going to be actual product. Micro-duct fibres, sundries. The 800,000 is going to be the actual putting it in the ground, the tools required to do that, the permitting and the project management and the labour components of that.
So when you start to add those pieces into it, you can see how the numbers for us will double, quadruple, throughout the next couple of years.
James West: Sure. Okay, so you’re currently listed on the Canadian Securities Exchange. Do you have any plans to list on the TSX Venture at all?
Michael Priest: That is my personal goal. I know that our Board has had a couple of meetings, and it is something that we definitely want to have it in front of us and get to that level, absolutely. The acquisition and the merger with the construction company, our strong partnerships internationally and into the United States with partners like the AT&Ts of the world and working with Telus and Bell and all of those, it’s absolutely somewhere that they would love us to be as well. That’s why it is a goal for us as well, and it’s something that I think we’ll be in a very strong position in 2016 to look at that seriously for, perhaps, 2017.
James West: Great. So who are your competitors?
Michael Priest: Now that’s a wonderful question. If you look at Lite Access again as the pure fibre optics play, no one, and again, people will be laughing that there’s always a competitor. There’s competitors in pockets of our business. So our competitors, there are people, there’s a company in India that manufactures duct. There’s a company in the United States that manufactures duct. They don’t manufacture our proprietary duct; it is quite different compared to ours as far as strength, durability, etcetera, so we like to differentiate ourselves. But they are in that arena.
There are companies that do engineering; there are numerous companies that do engineering of fibre optic networks, very large companies in Canada and the United States. But again, we have that component, and again, we specialize in the micro trenching end of that. There are companies that provide tools and labour, and help with permitting.
But when you bring all of those components together, there is no true competitor to Lite Access. We are the only ones today, the only ones listed that we know of, or I know of. I should know everybody and I do, that are providing all of those components for our customers.
James West: So Michael, that’s a great first interview. We’re going to leave it there for now. We’ll come back to you in a couple quarters’ time and see how you’re making out. Thank you so much for joining us today.
Michael Priest: Thank you very much for your time. I look forward to talking to you again and telling you about more successes.
James West: You bet. Thanks, Michael.
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