GCI posts flat first quarter, plans for bolstering broadband
General Communications Inc. began 2016 with flat revenue but hot investment prospects.
GCI’s quarterly revenue was even compared to last year, driven by dips in consumer spending and roaming, but two maneuvers free up roughly $200 million to beef up existing broadband projects in rural Alaska.
Ron Duncan, GCI’s president and CEO, said in a release that despite flat revenue he thinks the first quarter of 2016 was a success, considering the overhauls the company has had to make and the opportunities they opened.
Revenue in the first quarter was $231 million, unchanged year-over-year for the period and down $10 million sequentially from the 2015 fourth quarter.
Compared to a loss in the first quarter of 2015 of $19.3 million related to its acquisition of Alaska Communications’ wireless business GCI posted first quarter net income of $1.1 million.
“I am pleased with our start to the year,” said Duncan. “With long term agreements in place with our largest wireless roaming partners, we have better operating visibility that enables the company to make commitments to invest in longer term projects.”
Managed broadband and consumer data both grew for the quarter, but losses in wireless revenue and roaming ate into those gains.
“The decline is driven primarily by our new long-term roaming arrangements,” explains GCI in its press release, but roaming and backhaul only account for a portion. Wireless wholesale took a hit along with the roaming.
The roaming revenue loss comes from security play. Late in 2015, GCI renegotiated its roaming agreements with Outside carriers, keeping the lucrative agreements for a $25 million price tag.
Alaskans on powerhouse Lower 48 carriers like AT&T and Verizon roam on GCI networks when they step outside urban cores. Modern wireless users demand more and more data even when roaming, so the carriers foot an ever more expensive bill to use GCI’s network.
Kyle Jones, GCI’s senior manager of corporate finance, said the big carriers could lower those costs by telling their customers to stop using roaming, or even canceling their agreements with GCI altogether and build their own networks.
Rather than risk losing the roaming revenue altogether, GCI secured long term agreements with the big carriers at a new rate that lowers roaming revenues by $25 million.
“We are receiving upwards of $100 million from backhaul revenues that were volatile,” Jones. “We didn’t have any security. By taking a $25 million reduction, we do have security.”
Wireless revenue dipped, both sequentially and from the same quarter last year.
Total wireless revenue was $51 million in the first quarter, a $9 million decline from the fourth quarter of 2015 and an $8 million drop from the same period year-over-year.
Jones said the declines stem in large part from a drop in customer-sourced spending. Many of the 87,000 wireless subscribers GCI acquired through AWN got put into cheaper plans.
Further, the change in phone payment structure nets less consumer money to GCI. Jones said more than 90 percent of GCI wireless customers finance their new phones. The financing option gives a $30 service discount, so GCI’s wireless revenues don’t stack up against non-discounted past.
Phones weren’t kind to GCI’s balance in more ways than one. Typical for first quarter, GCI took a $4 million sequential decline in handset sales — Permanent Fund Dividends, fall iPhone launches, and the Christmas season are tough fourth quarter acts to follow.
Despite the losses, GCI’s other areas of focus performed well.
GCI did see growth in managed broadband, which provides wire connections for businesses. Revenues in managed broadband were $43 million, up 27 percent over the first quarter of 2015 and 7 percent over the prior quarter.
GCI also had a successful quarter absorbing new customers from its purchase of Alaska Communications’ wireless subscriber business and its 33 percent share of the Alaska Wireless Network for $300 million in cash in a deal finalized Feb. 2, 2015. The purchase gave GCI 80,000 more wireless customers.
Much of GCI’s concern since then has been switching customers into the new billing system without losing them; Duncan said the first quarter was a success in this regard.
“We have made great progress with the migration of acquired wireless subscribers onto our primary billing system, which is now over 70 percent complete,” Duncan wrote. “Our subscriber count is down less than one percent during the quarter, our best since the AWN transaction.”
Beefing up broadband
Successful wireless consumer absorption is only part of GCI’s plan. The other part, rural Alaska broadband dominance, is the real winner behind GCI’s numbers.
GCI’s finances prepare them to spread capital expenditure dollars around the state. Both the roaming agreements and a recent real estate deal loosen up capital for North Slope and Southwestern Alaska projects, in particular.
Along with the $100 million of secured roaming agreements, a telecommunications real estate sale put another $91 million of investment-ready funds into GCI’s coffers.
GCI made a sale-leaseback agreement on May 4 to sell its urban wireless tower and 275 rooftop sites to Vertical Bridge for $91 million – approximately 20 times what the towers bring in for GCI, according to Vertical Bridge.
The sold sites are all urban, company representative said. GCI’s rural TERRA sites will remain GCI’s property.
Florida-based Vertical Bridge is the largest private owner and manager of communication towers and locations in the U.S, with 45,000 tower, rooftop, billboard, utility attachment and other site locations. GCI’s sale now makes Vertical Bridge the largest tower owner in Alaska, with approximately 300 wireless/broadcast sites.
The agreement includes build to suit services to AWN for the next five years; if GCI needs improvements or new sites, Vertical Bridge will build them.
The sale was motivated by a desire to concentrate on operations. GCI said it would rather focus on its core competency — consumer relationships — than site maintenance.
“We’re a customer service business,” Jones said. “We don’t necessarily want to be in the business of building and maintaining that tower.”
Jones said the priorities remain with rural broadband expansion.
“The two ramping up now are the expansion of TERRA, and we’re also building a fiber to the North Slope,” said Jones.
GCI’s TERRA projects created a hybrid of broadband and microwave transmitters in Southwest and Northwest Alaska
The TERRA-Northwest project extends from Nome to Kotzebue. The Southwestern portion of TERRA began upgrades June 8 with new microwave radio networks from Levelock to Bethel — which allows 3G wireless data service in 28 communities in Southwestern rural Alaska villages, including Aniak, St. Mary’s, and Marshall.
GCI also has an existing fiber leading to the North Slope.
Though both projects are operable, Jones said they have room to grow to ensure longterm stability: they have no backup systems.
“Prudhoe Bay and TERRA are some of the two places in our network where we don’t have any redundancy,” Jones said.
To add stability, GCI will build another North Slope fiber to run concurrent with the existing fiber, and install similar systems for TERRA-Southwest.
DJ Summers can be reach at [email protected].