tw telecom announces expansion plans

Managed services provider tw telecom inc. (NASDAQ: TWTC) says it plans to increase its addressable market by expanding its metro fiber-optic network footprint by approximately 17%.

As part of the expansion, in 2014 the company expects to enter five new high-demand markets and increase the density of its metro-fiber footprint in 27 or more of its existing markets. In addition to the metro market expansion, tw telecom also plans to increase its regional fiber footprint, which will provide greater capacity, increased network control, and cost-effective connectivity.

"Expanding our fiber infrastructure will allow us to build on our nationwide network by increasing our addressable market, extending our regional connectivity, and strengthening key corridors of commerce for our existing operations," said John Blount, tw telecom's chief operating officer. "By accelerating the expansion of our existing markets using our established operational teams and infrastructure, as well as entering new cities where our customers already have networking needs, this expansion gives us quick access to current demand and an accelerated path to greater revenue opportunities."

tw telecom will extend its services into five new markets, including Boston, Philadelphia, and Richmond in the Northeast/Atlantic region; Cleveland in the Midwest; and Salt Lake City in the Northwest/Pacific.

The company will also increase its market reach and network density in one-third of its existing markets including Northern New Jersey, Baltimore, Washington, DC, Atlanta and New York City Greater Metro area in the Northeast/Atlantic region; Minneapolis/St. Paul, Chicago, Indianapolis, Memphis, Louisville, and Nashville in the Midwest; Tucson, Phoenix, Las Vegas, Albuquerque, Denver, Colorado Springs, and Houston in Southwest/South Central; Seattle, Spokane, Portland/Vancouver, Boise, San Francisco/San Jose, Oakland, and Los Angeles Orange County in the Northwest/Pacific.

To enable this expansion, tw telecom says it has entered into several agreements for metro and regional fiber that it expects to recognize as a capital lease obligation of approximately $120 million in the fourth quarter of 2013, which will be paid over the initial 20-year lease term. The company also expects to invest approximately $50 million in 2014 to integrate and connect the new optical transmission infrastructure into its national network and operational infrastructure.

"We have a rigorous bar against which we judge all capital allocation opportunities and believe this accelerated market expansion provides significant benefits to the company," said Mark Peters, tw telecom's executive vice president and chief financial officer. "Because of our ongoing cash flow generation and strong liquidity, we have the ability with our capital allocation plan to invest in growth initiatives such as this, continue to invest in success-based capital and other investments, and execute our recently announced $500 million share repurchase program, as we continue to maintain our balance sheet flexibility."

The company also intends to expand its sales force and operations personnel to support the expansion project. Overall, the initiative is expected to produce an incremental sales contribution in 2014 and generate positive incremental modified earnings in 2015.

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