GCI roaming income drops under new deals with Outside carriers

Financial agreements made in late 2015 are still eating into the bottom line for General Communications Inc.

Most of GCI’s numbers sank in the third quarter of 2016. Company executives said the financial drops are due mainly to roaming and backhaul contracts sapping some of the usual seasonal turnaround, along with less revenue from wireless consumers.

Net income increased $5 million from the second quarter but dropped by $10 million over last year, from $17.6 million in third quarter 2015 to $7.9 million this year.

Total revenue declined as well. By September 2015, GCI brought in $259 million in total revenue. This year, total revenue went down to $237 million, an 8.5 percent decline.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, went down along with rest of the numbers by $16 million year over year, though the this is up $7 million over last quarter.

GCI said year-over-year comparisons for EBITDA are misleading due to financial agreements.

Late in 2015, GCI renegotiated its roaming agreements with Outside carriers whose customers travel to Alaska. The new deal secured the lucrative agreements by lowering the cost to the carriers. This cost $25 million for GCI, but also cemented the $100 million the contracts are worth. 

“Year-over-year revenues were down $22 million as a result of our roaming and backhaul agreements,” said chief financial officer Peter Pounds in a Nov. 3 earnings call. “Recall that in previous years roaming seasonality significantly increased our second and third quarter results. The new contracts remove most of our seasonality.”

Instead, GCI points to sequential EBITDA growth, which in the third quarter grew by $7 million.

Cell phones contributed to a bug chunk of the revenue drop. Wireless revenue fell $28 million compared to the same quarter in 2015, and $2 million compared to last quarter.

GCI has been shedding its total number of wireless lines over the last year. At the end of September 2015, GCI had 231,900 lines in service. This year, that number dropped by 5,500 lines to 226,400.

Not only has the total number of wireless lines dropped, but the amount of money GCI makes from each line has declined by 16 percent.

Total ARPU, or average revenue per user, went down $7 year over year, from $44.24 per user to $37.21 per user.

The company has had to curtail some of its planned expansions.

In September, GCI announced that it would cut as much as one-fourth of its planned capital project spending next year in light of the State of Alaska’s failure to implement a fiscal plan during its 2016 marathon legislative session.

GCI accounts for nearly half the amount of private utilities-related capital construction in the state.

In an earnings call, Chief Financial Officer Peter Pounds explained that GCI will focus on cutting capital costs in its two biggest projects, which connect remote areas to wireline.

“The two primary areas where we’ll be reducing capital expenditures next year is, number one on the fiber going to the North Slope where we’re forward funding,” said Pounds. “It’s a two-year project but more than half of that is being spent this year, so year-over-year we should experience a decline and number two the spending on the TERRA project will decline next year with some of the significant spending that we’ve had this year.”

DJ Summers can be reached at [email protected].

12/03/2016 - 9:58pm