GCI posts loss for 2016, sees major drop in wireless lines

  • Crew with STG Inc. wait for the upper section of a remote tower that’s part of GCI’s TERRA rural broadband project. GCI will continue spending money on TERRA in 2017, but is following through with its announced cut of about 20 percent in capital spending based on the state’s economic condition and the Legislature’s failure to date to pass a plan addressing annual deficits of about $3 billion. (Photo/Courtesy/STG Inc.)

General Communications Inc. posted its 2016 results on March 1, with declining wireless revenue and customers that track with Alaska’s broad economic downturn.

With the state facing another $3 billion budget shortfall and still without a fiscal plan to address it, the GCI is following through with cutbacks on capital spending first announced last summer.

GCI made less revenue in 2016 than in the year before, going down from $979 million to $934 million. In the fourth quarter of 2016, revenues dropped to $232 million, down $4 million from the prior quarter and $9 million from the same quarter in 2015.

The company had a net income loss of $4 million compared to 2015, still an improvement from the $26 million loss in 2015 that was largely related to the acquisition of the wireless business and infrastructure from fellow Anchorage-based telecom Alaska Communications.

Further, wireless subscriber numbers have fallen in concert with Alaska population.

In an earnings call March 2 and in press releases, executives have focused on the same reasons to explain losses in previous quarters throughout 2016, and said they expect flat revenue in 2017, though exact numbers aren’t certain.

“We are given the recession that the state of Alaska is in and we didn’t feel comfortable giving specific revenue guidance,” said Pounds. “But I would not expect it to be terribly far off of last year’s performance absent the roaming.”

Late in 2015, GCI renegotiated its roaming agreements with Outside carriers whose customers travel to Alaska. The contracts are worth $100 million in the long term, but in the shorter term GC had to pay $25 million to secure them.

The impacts drew out through the tail end of 2016. Absent the roaming and backhaul declines, GCI reported 1 percent topline revenue growth.

In the future, GCI recognizes that revenue is going to slow, but will try to keep costs down by transferring more of its existing customers to a new billing system to save costs.

“With the current state of Alaska fiscal situation, we are focusing on operating a more efficient organization to drive EBITDA (earnings before interest, taxes, depreciation and amortization) growth in spite of what may be limited revenue growth,” explained Chief Financial Officer Peter Pounds.

The roaming agreements and Alaska’s recession are having an impact, as GCI spends less money and is shedding some of the wireless connections it bought in 2014.

Consumer wireless revenues dropped 13 percent in 2016, from $75.8 million in 2015 to $66.2 million in 2016.

Total wireless revenues shrank to $50 million in the fourth quarter of 2016, a $2 million sequential drop and down $10 million from last year.

Some of GCI’s financials roughly match Alaska’s outmigration, which totaled 4,300 in 2016, according to Department of Labor and Workforce Development statistics.

GCI lost more than 5,000 total wireless lines in 2016, from 227,800 at the end of 2015 to 222,500. Declines were pronounced in business wireless, with a drop of 2,000, and in postpaid accounts, which dropped by more than 7,000. The company gained just less than 5,000 prepaid customers.

It has also lost 6,300 basic video subscribers, from 114,000 at the end of 2015 to 107,700 at the end of 2016, which was far from offset by a gain of just 300 cable modem customers.

GCI’s fiscal situation rolls downhill in Alaska.

Alaska’s Legislature hasn’t come up with a budget fix just yet, and the uncertainty carries the certainty of declining construction.

To end 2016, GCI hit its capital expenditures forecast right on target, spending $211 million.

However, the company will spend substantially less in the coming year. In 2016, GCI announced that it would cut its 2017 capital spending by 20 percent to 25 percent due to the state’s uncertain economic outlook, or to between $158 million and $168 million.

During the earnings call, Pounds said GCI will spend $165 million in 2017.

This money will go mainly to developing GCI’s TERRA rural broadband expansion project, he said.

“I would just note that we continue to spend an awful lot of money on TERRA,” said Pounds. “And we are going to continue to spend that this year in 2017. As we look to ring the network one of the things that we are very, very concerned about is making sure that we’ve got the best reliability that we can have and by ringing that network we will have that.”

For the state’s construction businesses, this is a hit. In 2016, GCI’s $211 million in capital spending totaled nearly half of Alaska’s private utilities construction spending of $459 million.

This year, the ISER projects $498 million in utilities spending, meaning GCI’s capital expenditure will only be a third of the total.

“Large cutbacks by the telecom industry will be offset by some growth in renewable electrical energy projects,” reads the forecast. “A number of large-scale conventional electric generation plants were completed in recent years, and no new plants are under construction or planned for the next few years. Most electric utility spending will be for normal maintenance of facilities.”

03/09/2017 - 2:25pm