ILECs, Cable, ISPs Come Together on Symmetric Originating Access

NTCA and Others Send Letter to FCC Explaining Unexpected Shared View

On March 8, 2012 NTCA, NCTA, Cbeyond, Earthlink, Integra Telecom, Frontier, tw telecom, and Windstream wrote to FCC Chairman Julius Genachowski to express their thoughts on the treatment of originating access charges. The group writes, “The undersigned parties do not necessarily share a common view on the appropriate long-term framework for originating access, but we all agree that, consistent with the principle of symmetric treatment established in the CAF Order, the Commission should resolve this dispute by stating that all originating access charges are subject to the same treatment pending further reform.” Considering that many of the undersigned represent polar opposite viewpoints on other aspects of USF/ICC reform, this letter appears to signal a significant industry consensus on one of the important issues that the FCC is likely to rule on in the coming months. Originating access is one of the topics in the second part of the FNPRM, to which comments were filed last month.

The letter continues, “There are numerous advantages to the Commission acting quickly to state that the appropriate jurisdictional originating access rates apply for all traffic and all originating intrastate access traffic will be treated the same prior to the completion of the public comment process that is currently underway. By providing for the symmetrical treatment of originating access in the near term, the Commission will avoid creating further asymmetries between VoIP-PSTN and non-VoIP-PSTN traffic and foreclose what otherwise could be new avenues of arbitrage.” The group asks the FCC to cap intrastate originating access rates at the December 29, 2011 level for price cap carriers and CLECs that benchmark access rates to price cap carriers; and “place no limits on originating access rates for rate-of-return carriers and CLECs that benchmark to rate-of-return carriers.”

In addition to curbing arbitrage and avoiding asymmetries between different types of traffic, the group believes that this approach “would ensure that reforms do not disrupt further broadband investment by incumbents or competitors,” and “defer any need to reexamine access replacement support in response to originating access charge reduction.” In previous comments, NTCA and the Rural Associations urged the FCC not to reduce RLEC originating access rates to zero under a bill-and-keep methodology because the impacts of terminating access reduction and other ICC reforms are still unknown. The Rural Associations argued that RLECs would have a difficult time recovering originating access revenue, which could lead to unpleasant rate increases for customers.

Read the full letter here.

Windstream Launches 'Merge' - New High-Speed Internet/Streaming Bundle

Source: Windstream Press Release

Windstream (Nasdaq:WIN) announced the launch of Merge, the company’s new high-speed Internet and streaming entertainment service. Merge allows consumers to customize their entertainment experience with high-speed access to their specific programming choices from the Internet directly to their television.

Merge is available in all Windstream residential service areas and includes:
• High-speed Internet connection with Wi-Fi
• Roku streaming box
• Unlimited nationwide calling
• 24/7 U.S.-based customer support
A six-month contract may apply.

Customers who sign-up for Merge through June also will receive:
• Free six month membership to Hulu Plus
• First month free Merge service
• Free installation

Windstream Gets Consent to Amend and Restate Senior Credit Facilities

Source: Windstream Press Release

Windstream Corp. (Nasdaq:WIN) announced that it had obtained the consent of the requisite lenders to the previously announced proposed amendment and restatement of its existing senior secured credit facilities.

Among other things, the amendments: (i) provide for the incurrence of $280 million of additional term loans, the proceeds of which will be used to partially repay the credit facility revolver (without any reduction in commitments); (ii) extend the maturity of certain existing term loans; (iii) provide for the ability to refinance and extend the maturity of any term loan or revolving loan with the consent of the affected lenders; and (iv) modify certain other definitions and provisions.

With a Slew of Acquisitions, Windstream Reports 4Q11 Loss

Source: Windstream Press Release

Windstream Corp. (Nasdaq:WIN) reported fourth-quarter and full-year 2011 results. Pro forma total revenues, which include results for PAETEC and other recent acquisitions, were $1.6 billion for the fourth quarter, an increase of 0.7 percent over the same period a year ago. Windstream's full-year pro forma total revenues were $6.2 billion, a decline of 0.3 percent from 2010, and adjusted OIBDA was $2.4 billion, an increase of 1.2 percent.

In the fourth quarter under Generally Accepted Accounting Principles, Windstream reported consolidated revenue of $1.2 billion, operating income of $100 million and a net loss of $31.9 million, or 6 cents per share. That compares to net income of $57 million, or 10 cents per share, on total revenues of $981 million during the same period in 2010.

GAAP results include a pre-tax non-cash pension charge of approximately $163 million, or $103 million after-tax, during the fourth quarter due to previously announced changes in the company's pension accounting method. In addition, results include approximately $23 million in after-tax merger and integration expense and an after-tax loss of roughly $7 million related to the early extinguishment of debt. Excluding all of these items, adjusted earnings per share would have been 19 cents for the fourth quarter.

For all of 2011 under GAAP, Windstream reported net income of $172 million, or 33 cents per share, on total revenues of $4.3 billion. That compares to net income of $313 million, or 66 cents per share, on total revenues of $3.7 billion during the same period in 2010.

A Tale of Two Community Broadband Strategies in NC - Part 2

Fibranet Struggles to Balance Expenses with Revenue, Seeks "Conservative Growth"

Today we continue our look at two very different community-run broadband strategies in North Carolina—approaches to the next chapter of broadband that still include a great deal of uncertainty and varying degrees of risk. Yesterday's focus was the newly launched super Wi-Fi network in New Hanover County, NC, and today we zero in on Fibranet, a city-owned fiber network that went live one year ago in Salisbury, NC.

To date, Salisbury's former City Manager David Treme says that Fibranet has more than 1,700 customers, with 13% market share—all after billing its first customer back in December of 2010. But with those numbers, the network is behind its projected revenue and subscriber forecasts. Initially, the project stalled with technical deployment issues: private companies were slow to move their lines to free up space on the utility poles, the customer service center had to be redesigned because of its designation as an “essential” structure by Rowan County (something that cost the city an extra $1m), and so on... all struggles that are all too often a part of any fiber deployment.

All told, the city of more than 33k people will spend $70m on Fibranet. This year, the debt payment increases to approximately $3m annually (up from $1.7m the first year), and this level of repayment will continue from 2013-2029.

Leadership has been a struggle for the network, too, as its original director and marketing chief are both gone, and the city operated with an outdated business plan for the first months of operation. So far, Salisbury hasn't found a suitable replacement for director, either, and Mayor Paul Woodson acknowledges that it's a critical time for the network. Last week, city council members made Fibranet's future a strategic priority and urged staff to treat the network as a competitive business, not a municipality. “I’m very encouraged about what’s happened down there,” Woodson said. “They are thinking like businessmen now.”

The truth is, many of Fibranet's employees are from the private sector, and Woodson said that some of them even took pay decreases to join the network. For instance, Plant Manager Barry King and New Sales and Customer Service Manager Jenny Waisner both left Windstream for Fibranet. King said that the network's competition has actually driven down rates by other providers, and Waisner believes that the network has the best interest of residents in mind—rather than simply trying to make money.

Still, no network survives on good will. Fibranet cannot raise rates beyond current levels, because the network is already undercut by other providers. Instead, to drive up revenues and drive down expenditures, Woodson said he would like Fibranet to cut between $500k to $1m in costs—a hefty goal for a new fiber build. He's optimistic, because the network is experiencing what he calls “steady growth,” saying that an average of 30 new customers sign up for the service every week and that retention rates are at 99%. After completing its first year of operation, the network is also more able to negotiate existing contracts, Woodson said.

The question is, can revenue ever catch up with expenses... and soon? Fibrant currently pays about $1,350 for each residential installation, with commercial installations costing even more. (These installations are free for Fibrant customers, unless they unsubscribe within the first year, at which point they're charged $360). Altogether, the network's list of expenses is challenging at best: Fibranet will pay $1.2m in programming costs this year, in addition to total installation costs of $2.5m and debt service of $1.7m. Fiscal expenditures for the year will total approximately $5.5m—a very, very steep climb.

Interim City Manager Doug Paris said that what the network needs is “conservative growth,” as the cost of expansion and new installations are quite pricey, but also essential. He added that Fibranet is expected to generate $2.4m in revenue this year—enough money to cover the debt repayment so that by 2015 the city hopes to generate enough revenue that they can stop borrowing money from other city funds to support it.

Like many municipal fiber networks, Fibranet has had critics from the start, and last year the North Carolina General Assembly passed a bill limiting municipal broadband in the state. Paris, Treme, and other officials mounted a significant defense against the cable companies who lobbied for the bill, and in the end Fibranet was awarded the most favorable exemption of any city with a publicly owned broadband network.

Like so many other start-ups, time will tell if this venture will survive and be profitable--or at least break even. It's a question, too, of whether publicly funded broadband is the answer for underserved areas or if private companies are still better qualified to build and service these networks. When Salisbury first discussed plans for fiber coverage, they solicited private companies but couldn't reach an agreement. Now, they've chosen to go it alone.

From the beginning, Treme said he “knew this would be harder than we thought... I knew it was going to be the most difficult thing we’ve ever done.” But he also promised that, while many municipal networks “do not make it, we are one that is going to make it.”