User revenue up while total customers decline for ACS in 1Q

First quarter results for Alaska Communications System Group Inc. were mixed as decreases across all customer segments were largely offset by increases in billing averages from business broadband to wireless data use.

Excluding out-of-period charges taken during the first quarter of 2011, first quarter revenue in 2012 increased by $4.5 million, or 5.5 percent, to $85.9 million in results released May 1.

Net income for the first quarter was $1.13 million compared to $2.7 million in the 2011 first quarter.

After three straight quarters of increases, the Alaska Communications consumer wireless base declined by about 400 customers to 117,156. In the broadband segment, consumer connections decreased by 294 and business connections by 67, but average revenue per user, or ARPU, increased in both areas.

ARPU for consumer broadband was up by nearly $4, to $37.56 per month versus the first quarter of 2011, and business broadband ARPU has jumped from $126.66 to $141.60 year-over-year.

Alaska Communications also saw a major shift in its wireless base after launching new prepaid plans last year.

The prepaid customer base increased by about 3,500 customers year-over-year, to 11,023, while postpaid (contract) customers declined by more than 2,500 to 106,133 in the same period.

That shift in prepaid customers drug down the ARPU for consumer wireless from $53.54 at the end of 2011 to $51.83 at the end of the first quarter.

On the flip side, ARPU for wireless data increased year-over-year from $14.78 to $17.35.

Capital expenditures continued to increase as Alaska Communications has been hard at work on a 4G LTE network rollout, which would be the first LTE in Alaska and position it to compete against Verizon Wireless’ 4G LTE when the company enters the market within the next year.

Capital expenditures were $13.1 million in the first quarter, but the release of the Apple iPhone 4S on April 20 has pushed back the LTE rollout once planned for the second quarter as the latest iPhone isn’t LTE compatible.

ACS is heavily subsidizing the iPhone 4S at a $50 discount, which will put more pressure on already squeezed margins that led the company to cut its dividend sharply in the fourth quarter of 2011.

“Given higher equipment subsidies associated with this device we believe previous guidance on (earnings before interest, taxes, depreciation, amortization) and free cash flow will be impacted,” said Chief Financial Officer Wayne Graham. “Once we have a more extended selling period to make an accurate assessment, we will provide updated guidance numbers.”

Alaska Communications cut its dividend to free up cash flow for debt retirement and cap-ex spending, and in response to the Federal Communications Commission slashing Universal Service Fund high cost support, which helps cover the cost of rural wireless networks.

The FCC order is shifting $4 billion from USF high cost support to efforts to expand rural broadband access. That has put Alaska telecoms in a bind because it isn’t possible to reach rural areas without a largely wireless network.

The GCI TERRA-Southwest network turned up in late 2011 reaches 65 Alaska communities as far as Emmonak, but the “wired” portion of the network only extends about 40 miles past Iliamna Lake before microwave repeater towers carry signals the rest of the way.

USF high cost support declined by about $1.8 million year-over-year for ACS, which expects that revenue to be down by $4 million to $5 million in 2012.

Alaska Communications continued to see increases in roaming revenue as it carries traffic for Verizon Wireless in the state — up by $2.6 million year-over-year — but that income will steadily decline once Verizon can move its customers to its own network by the middle of 2013.

Investors haven’t reacted well to the dividend cut or the latest earnings report. ACS cut its quarterly dividend from 21.5 cents per share to 5 cents per share Dec. 21. The share price dropped to $5.60 in November when ACS revealed dividend cuts were being considered during its third quarter earnings call, and hit $3.14 per share on the Dec. 21 announcement of the cut.

Shares declined another 7 percent the day after Alaska Communications released first quarter results, and were trading as low as $1.81 on May 16 after opening the day at $2.03.

ACS shares have traded as high as $9.10 within the last 52 weeks.

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