Recession, federal payment cuts contribute to revenue decline at GCI

  • GCI Liberty saw revenue decline in 2018 as the state remained mired in a three-year recession and the federal government cut its Rural Health Care reimbursements by $28 million. (Photo/File/AJOC)

Alaska’s economic outlook and a major shortfall in federal reimbursements took a toll on GCI Liberty during 2018.

The final stretch of 2018 yielded better results than the year before, but the company’s annual finances took a dip overall.

GCI’s total revenue grew less than 1 percent in the fourth quarter of 2018 from $225 million to $226 million. However, total annual revenue declined 2.2 percent from 2017 to 2018, from $895 million to $875 million.

In part, Alaska’s wobbly economy drove the decline, according to Vice President of Corporate Communications Heather Handyside.

“Certainly we’re still seeing the effects of the sluggish economy in Alaska,” Handyside said. “You see that in the business side of the finances.”

Handysides’ diagnosis is supported by the company’s annual report.

Business revenues were entirely responsible for the overall decline. Business revenue dropped 4 percent year-over-year, from $458 million to $439 million. Of the business revenue streams, wireless, data and voice each shrank with the only increase in video.

Alongside Alaska’s economy, GCI’s financials reflect a shortcoming from the federal government.

“We took a dramatic cut last year with the Rural Health Care funding that was reduced from the amount we requested,” said Handyside.

Federal law requires that internet providers serve rural healthcare facilities at the same cost as more populated areas. The Federal Communications Commission’s Rural Health Care program gives financial assistance to internet providers to expand and administer rural telemedicine options.

A few bad apples spoiled the applications for GCI and Alaska Communications Systems Group Inc., Alaska’s largest internet providers. The Federal Communications Commission exhausted its $400-million annual pool of money to fund the Rural Health Care program and a federal investigation showed some non-Alaska companies inflating their rural internet rates to justify greater reimbursement.

Those companies were fined, and the funding shortfall led to GCI receiving nearly $28 million less than it had requested for services rendered.

GCI is currently in the process of appealing the FCC decision. The commission has opened up its rule-making process to comment. Handyside said the FCC may not have thoroughly understood the challenges inherent for Alaska’s internet providers such as the logistics of providing internet service across such distances and population sparsity, in particular.

“Our goal would be for the decision to be reconsidered,” said Handyside, though she emphasized GCI has no idea when the FCC will consider and decide on the appeal.

The loss of $28 million in expected receipts contibuted in part to the layoff of 87 employees announced April 4, or about 4 percent of its workforce.

Despite the bruises from economy and federal government, GCI’s annual financials did display some bright points.

GCI’s consumer revenue stayed level at $437 million year-over-year.

This revenue’s stability relied entirely on data growth. Data revenue increased by 10 percent, from $146 million to $160 million, or exactly enough to offset declines in every other consumer revenue stream. Consumer wireless, video, and voice revenues dropped 2 percent, 10 percent, and 6 percent, respectively, from 2017 to 2018.

Streaming services and the cord-cutting habits of American consumers in general contribute to the decline, but Handyside said myriad factors play into the shifts in consumer revenue streams.

“There’s not one thing that explains it,” said Handyside. “On the consumer side of the house it fluctuates generally. This reflects having a lowering population.”

Other numbers continue the trend. GCI’s cable modem subscribers increased 1 percent, but video subscribers declined 8 percent, and total consumer voice lines declines 9 percent.

“I think people are finding more and more ways to watch the content they want to watch,” Handyside said. “We find there also a strong segment who want to watch things with predictability. We’re trying to continue to serve those markets.”

Despite financial setbacks, Handyside said her company can point to some concrete successes in 2018, particularly with GCI’s rural 1 gigabyte internet service.

“We’ve gotten our 1 gig service out to rural communities,” Handyside said. “Eighty percent of Alaska has access to 1 gig. The fact we have remote communities like Kodiak and Sitka have 1 gig service, that’s pretty incredible.”

04/24/2019 - 8:16am