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ILEC 3Q11 Quarterly Results: NTELOS

Waiting for Growth Initiatives to Kick In

In its final quarter as a combined wireless/wireline company, NTELOS Holdings Corp. reported mixed results, despite management’s stated belief that both new companies—Lumos Networks and NTELOS (now wireless only)—are well positioned for future growth. NTELOS completed the spinoff of Lumos Networks on October 31, and ceo James Hyde said, “This event is clearly the most significant in the company’s 114 year history and reflects our commitment to best positioning both companies for the future. It is truly an exciting time as both companies now move forward with highly-focused strategies to capitalize on the growth opportunities unique to each.”

But when it comes to growth, the two new companies aren’t quite there yet. 3Q11 declines in wireless subscribers were characterized as “seasonal,” and solid growth in wireless wholesale revenue from Sprint did help offset the losses, allowing for a 7% YoY increase in wireless revenue. But wireless subscriber revenue fell on both YoY and sequential bases, to $62.5m down from $66.1m in Q310. Retail subscribers fell to just under 415k, down about 9,800 in the quarter, and subscriber churn was a relatively high 3.7% in the period. Prepaid results were more encouraging as the company’s new $45 per month, all-inclusive rate plan led to a 14% increase in gross adds.  NTELOS introduced the FRAWG Unlimited Everything plan in June and believes that the plan “eliminated a competitive pricing disadvantage and, through anticipated churn reductions, potentially enhances lifetime revenues.” NTELOS is also expecting stronger smartphone sales to enhance revenue in coming quarters. Smartphones accounted for two-thirds of postpaid gross adds in the period, up from just 17% a year earlier. Management noted that, “These related costs are fully reflected in the quarter, while revenues are expected to continue to benefit future periods.” At the end of the quarter, NTELOS’ smartphone/data card penetration of the postpaid sub base was 34%, up from 18% a year ago.

Wireline revenue jumped due to the inclusion of the FiberNet acquisition that Lumos Networks completed in December of last year, but on a pro forma basis the top line slid YoY, from $39.1m in 2010 to $38.6m in the competitive wireline segment (which accounts for 75% of wireline revenue). The company said, “Growth from data products was mitigated by revenue decreases in competitive voice, long distance and other legacy products resulting primarily from anticipated off-network, voice customer churn in the acquired markets.”

And in the RLEC, revenue fell 11% YoY to $12.4m “reflecting access revenue losses.” Of a $0.5m decline QoQ, the company noted that $0.6m was due to the biennial regulatory access rate reset that when into effect on July 1. Lumos is looking for growth ahead in its enterprise data products and wireless carrier backhaul. Michael Moneymaker, president of Lumos Networks said, “With market data demand only in early stages, we are well positioned for continued sales successes in these key segments.”

Certainly both NTELOS Wireless and Lumos Networks have divisions poised for growth in future quarters, though based on third quarter results it does remain unclear as to whether or not that growth will be adequate to offset market pressure in legacy businesses.


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