Alaska Communications gains in broadband as FCC funds slip

Alaska Communications Systems Group Inc. reported modest 0.4 percent gains as revenues increased in third quarter to $56.7 million with growth attributed to advancements in fixed wireless technology and losses attributed to a shortage in Universal Services Funds for the Rural Health Care Program.

In a year-over-year comparison to 2016, Alaska Communications saw overall revenue rise from $56.5 million to $56.7 million. Of that, business and wholesale provided 61.5 percent of the total revenue, up to $31.3 million from $29.4 million, or a gain of 6.4 percent.

Consumer revenue provided 16.4 percent of the total revenue, a category that saw a modest loss of 0.7 percent when revenues dipped to $9.3 million from $9.4 million. Broadband revenues rose from $23.1 million to $25 million – the largest category of gains at 8.3 percent. President and CEO Anand Vadapalli said broadband growth comes from both new customers and existing customers buying more products.

Regulatory revenue from the Federal Communications Commission, or FCC, was down to $12.5 million from last year’s third quarter of $13.1 million.

Losses in Universal Services Fund subsidies for Rural Health Care, meant to make remote delivery equal to urban costs, continued to bring down the bottom line, said Senior Vice President of Finance Laurie Butcher.

The FCC capped annual funding at $400 million for the third 2016 window, and cancelled any remaining payments claimed because the money had been used up. This left Alaska’s telecoms holding the bills in order to ensure rural health care rates were kept low, both GCI and Alaska Communications officials have said.

“Our results reflect uncertainty in the FCC’s Rural Health Care Program, causing a negative impact on revenue of $0.7 million for both the quarter and year-to-date and on adjusted EBITDA of $1.5 million for the quarter and $2.6 million to date,” Butcher said.

(EBITDA, a key metric for Alaska’s telecoms, stands for earnings before interest, taxes, depreciation and amortization.)

Vadapalli elaborated that the RHC funds impact both adjusted EBITDA and revenue.

“The program is critical for our rural health care providers to continue to provide services in our communities,” he said. “We are big advocates for both increasing the funding for this program as well modernizing the rules to make them more relevant for today’s technologies.”

Bright spots for Alaska Communications are emerging from a new fixed wireless technology strategy, Vadapalli said.

“Unlike mobile wireless where we are using our cell phones, fixed wireless is using a wireless connection to a fixed location like a residential or business location,” he said. “Fixed wireless is being used as an access technology in lieu of copper or fiber. With the advancements in this technology, we are able to deliver high speeds, at affordable rates, and in a capital efficient manner.”

Overall, the sales performance in business and wholesale was consistent with expectations and reflected “a robust delivery funnel,” Vadapalli said.

“This reflects services we have sold and contracted with customers and are now pending delivery and revenue recognition,” Vadapalli said. “The delivery of sold services can sometimes be long lead times, particularly for larger customers or complex services, depending on the customer timelines, construction timelines, etc.”

Alaska Communications continues to plan out its agreement with OneWeb’s satellite broadband internet technology set to go online in 2019. Alaska Communications will be delivering faster broadband after the two companies signed a non-exclusive memorandum of understanding.

The low-latency, ultra high-throughput satellite technology by OneWeb will allow lag-free web browsing after the Florida-based OneWeb launches its polar orbit to cover Alaska along with the rest of the U.S, Vadapalli said. The plan calls for 10 satellites to be launched in early 2018, pending testing.

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

Updated: 
11/15/2017 - 10:15am

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