ACS posts 2011 profit, plans 4G LTE launch for 2Q

Alaska Communications Systems Group Inc. posted a profit for 2011 and finished the year by adding wireless subscribers for the third consecutive quarter.

The results announced March 1 by Alaska Communications showed strong growth in operating income versus 2010, although debt expense continues to take a big bite out of the bottom line for the Anchorage-based telecom.

Alaska Communications showed a profit of $472,000 in 2011 and operating income of $63.6 million compared to $47.2 million in 2010. Total revenue grew from $341 million in 2010 to $349 million in 2011.

The company also released its long-term strategy to address the anticipated 2013 entry of Verizon Wireless to the Alaska market and the loss of $4 million per year in revenue from Universal Service Fund high-cost support reimbursements.

Both Verizon’s entry and the USF cuts will have a major impact on Alaska Communications. The company carries Verizon’s roaming traffic in Alaska and that represents a sizeable source of revenue. Alaska Communications had $38.9 million in roaming revenue in 2011, and anticipates that amount will increase until Verizon enters the market.

As Verizon’s Alaska network expands, roaming revenue will decrease and new income streams will need to be developed. Alaska Communications also needs to lower its overall debt load, which stood at about $569 million at the end of 2011.

Interest expenses on the debt run about $34 million annually, and reducing those costs are both short-term and long-term goals for Alaska Communications.

Toward that end, Alaska Communications announced last December it was cutting its dividend from 21.5 cents per share to 5 cents per share, a move that will free up nearly $30 million annually in cash flow.

“Our performance for the quarter and full year 2011 was solid. Execution discipline as demonstrated by our 2011 results has been and will remain an important theme as we implement our business plan,” said Anand Vadapalli, ACS president and CEO. “Our business plan provides a path to address both of these external events; by positioning us to grow retail revenues and market share in Alaska, as well as de-levering our balance sheet. The basis of our business plan is our affirmative assessment of the growth potential and our position in the Alaska telecom market.”

The company ended the year with $20.5 million cash on hand.

Alaska Communications is also in the testing phase for its 4G LTE network, and anticipates launching in the second quarter. Smartphone penetration has been a key driver of Alaska Communications’ revenue as its subscriber base declined by about 20,000 customers from 2009 to 2010.

Android-based smartphones have increased to 45 percent of its subscribers compared to about 32 percent a year ago, adding to average revenue per user through increased data use.

For 2011, Alaska Communications’ enterprise segment (business customers) increased 7.2 percent, or $3.5 million. Wireless revenue increased 6.8 percent, or $9.6 million. “Churn,” or the amount of lost customers, also declined to 2.2 percent.

Enterprise and wireless will drive the long-term strategy for Alaska Communications, as a key segment of the strategy is offering broadband solutions both wired and wireless to its customers. Expanding its enterprise solutions to small- and medium-sized businesses is also part of its long-term plans.

The 4G LTE network will be a lynchpin of those efforts, as such fiber-optic driven systems have shown real-world speeds comparable to wired broadband.

Other components of the long-term strategy include workforce development, providing consistent, “delightful” customer experiences and simplifying company operations to eliminate waste and non-value added activities.

“Free cash flow will be used to reduce debt over the next three years,” Vadapalli said. “The combination of investing in growth, improved service, and simplification while de-levering will drive our financial performance and build on our track record of success.”

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.