GCI posts loss in 2Q, takes hits in consumer and rural health care

General Communications Inc. posted a $9 million loss in the second quarter, which company officials attributed to weakness in consumer wireless and video as well as lost rural health care subsidies.

GCI released its second quarter financial results Aug. 2, showing the telecom brought in total revenue of $224 million, an overall decline of $4 million over this year’s first quarter.

The transaction between GCI and Colorado-based Liberty Interactive Corp., is expected to be completed by the end of 2017, GCI officials say, pending approval from the Federal Communications Commission. The deal involves no major changes to existing service or management, but sells a controlling interest to Liberty for $1.12 billion.

Business revenue was down 2.7 percent year-over-year, primarily from a $5 million reduction in subsidies to the rural health care providers that normally come from the Universal Service Fund, or USF.

Another bite came from Alaska consumers as they continue to change habits away from extensive cable channel packages and forego the latest iPhone or Samsung debut.

Declines in the consumer segment amounted to $6 million, primarily in the handset sales and average revenue per user. This was a 5.5 percent decline over last year.

GCI lost 7,800 cable subscribers in the past year, Chief Financial Officer Peter Pounds said. GCI has 102,700 basic subscribers, down from110,500 a year ago.

“The recession in Alaska is a significant contributing factor in our subscriber headwinds,” Pounds said. “There’s a cord-cutting trend in video, meaning people are asking themselves, when they see their friends lose jobs, ‘do I really need 80-90 channels?’

“This includes both iPhones and Samsung. The new phones they brought out this year weren’t as good in consumers’ eyes.”

But wireless also took a hit in the competitive environment of national low-rate offers from Sprint and T-Mobile. Though those companies don’t operate in Alaska, Verizon and AT&T do.

In competition with the Lower 48 carriers, Verizon and AT&T responded with deals meant to give them an Alaskan competitive edge, Pounds said.

Consumer wireless customers fell from 203,900 to 201,200 year-over-year, and revenue for the segment dropped 9 percent to $40 million. Business wireless fell by 800 customers from 24,200 to 23,400 this June.

In its Business segment, GCI absorbed 7.5 percent of all costs for health care providers in Alaska that exceeded their Universal Service Funds.

The Federal Communications Commission doles out funding from one pot of $400 million for all carriers nationwide to share in a competitive bid process. This year, RHCs in America exceeded the $400 million fund for the first time.

“Rural health in Alaska is expensive, and in order to bring their costs down, rural health areas pay what it costs in Anchorage to receive broadband,” Pounds said. “Anything over that cost is picked up by USF. But the second window of filers didn’t receive it (the subsidy) when the universal service funds ran out.”

GCI took the $5 million in losses after the FCC, recognizing the burden it would place on health care providers, asked the telecom to “forgive” 7.5 percent of the fees.

“Everyone took a hit,” Pounds said. “We are working with our rural health care provider partners and the FCC on alternative funding solutions for future years.”

The $300-million Terrestrial for Every Rural Region in Alaska network, or TERRA, was completed this summer. According to the second quarter financial report, a bright spot is the EBITDA or earnings before interest, taxes, depreciation and amortization.

This quarter GCI saw Pro Forma EBITDA margins of 33.4 percent compared to 30.6 percent in the second quarter of 2016 and 32 percent in the first quarter of 2017, the report stated.

Pro Forma EBITDA is up due to general operational efficiencies including savings achieved in procurement initiatives and GCI’s circuit costs.

“As we mentioned in our first quarter call, we are focusing on operating efficiencies and cost savings as we expect muted revenue growth in the context of the Alaska recession,” wrote Pounds in the second-quarter revenue report.

Pounds said the new efficiencies relate in part to hiring a procurement specialist who will work aggressively to find cost efficiencies across the company, which will keep up its EBITDA margin. Excluding costs for the Liberty transaction, GCI is narrowing its guidelines between $300 million and $315 million in 2017 EBITDA.

GCI’s stock has continued to rise in the third quarter and traded at $43.11 per share on Aug. 9.

When the deal between GCI and Liberty was first announced in April for selling a controlling interesting to the Colorado-based Liberty Interactive Corp., shares rose to $32.50 from a range of $12 to $20 per share over the previous year.

Naomi Klouda can be reached at naomi.klouda@alaskajournal.com.

Updated: 
08/09/2017 - 12:08pm

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