Sales of iPhone boost ACS customers by nearly 3,000


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Boosted by sales of the Apple iPhone 4S, Alaska Communications added its most wireless customers in years during the second quarter.

The company, which has steadily seen its market share erode from the No. 2 position in the state to some 20,000 customers less than GCI over the past two years, reported second quarter results Aug. 6 that showed 2,894 new wireless connections, giving Alaska Communications Systems Group Inc. a total of 120,050 customers.

Total revenue for the quarter of $90 million was a 6 percent improvement from the year-ago quarter, led by a $3.5 million increase in wireless revenue.

ACS executives said they were pleased with the results through the first six months of the year as they execute a revised business plan. However, the heavy subsidies required for iPhone sales cost the company $3.7 million in the second quarter and its net income was a loss of $1.6 million for the three months ended June 30.

Wireless subsidies nearly doubled year-over-year, from $3.4 million in the second quarter of 2011 to $7.3 million in 2012.

Chief Financial Officer Wayne Graham said ACS offered customers a free iPhone in exchange for a three-year contract, a deal that was “pretty popular.”

During the Alaska Communications call with investors and analysts Aug. 6, CEO Anand Vadapalli said one benefit to offering the iPhone that can offset the effects of the subsidy is some relief on pricing pressure as smartphone users consume more data.

Of the 22,900 wireless handsets the company sold in the second quarter — an increase by 7,000 over the first quarter — about 11,000 were iPhones and of those, 21 percent were new customers.

“The pain is significant in the short term,” Graham said. “You have to pay this higher subsidy, they (Apple) get the cash and we have to recover that over the life of a customer. Those customers use more data, they stay on longer in the network. You have to pay more per device to keep the customer, but you make a little more from them every month.”

“Adding 3,000 customers is a really big event for us. We’re really proud of our network, and how our existing customers came in. They showed up in droves. It’s a testament to the loyalty of our customers.”

The availability of the iPhone caused ACS to slow down its 4G LTE network buildout, which it began last fall in an effort to position itself to compete against Verizon Wireless.

Verizon is building out a 4G LTE network beginning in Anchorage, and is expected to launch its service by the second quarter of 2013. The iPhone 4S, though, is not LTE compatible and anticipating the increase in demand from its customers, ACS shifted to enhancements of its existing 3G network.

The iPhone 5 is expected to be released in the latter half of September and will be LTE compatible. The big question that remains is which carriers will receive the phone, and what type of network the iPhone 5 will “fall back” to when a customer travels outside a market with LTE service and connects to lower speed services.

Both Verizon and AT&T have built substantial LTE networks in the Lower 48, but the “fall back” network for the two are different.

AT&T, like GCI, uses high-speed packet access, or HSPA. Both market those networks as “4G” although within the industry they are still considered less than 4G. LTE, which stands for long-term evolution, delivers true 4G data speeds.

ACS and Verizon use code division multiple access networks, or CDMA. GCI, while using a HSPA+ network, does have a legacy CDMA network in Alaska.

Whatever networks the iPhone 5 will work for, ACS and GCI should have the infrastructure to handle it when it becomes available to them after the two companies announced a deal to combine their assets to form the Alaska Wireless Network.

The AWN, which must undergo a lengthy regulatory review with a target closing date of the 2013 second quarter, will have the spectrum, speed and scale to compete with the national carriers in Alaska, according to the two companies.

Nothing will change on the retail side of the Alaska telecoms’ businesses as both will continue marketing their products and services independently. GCI will pay ACS $100 million to acquire a two-thirds share in the AWN, providing much needed debt relief to Alaska Communications. The combined company will be headed by current GCI Chief Operating Officer Wilson Hughes.

 

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

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