Consumer Wireless Growth Slows to 1%
Following a lackluster 2Q11 in which General Communications (Nasdaq:GNCMA) reported a net quarterly loss for the first time in two years, GCI management offered a rosier outlook for 3Q11, projecting wireless growth and citing the completion of its $88m fiber build. While the cableco did report improved top and bottom lines in 3Q11, GCI’s wireless segment failed to produce significant growth.
Quarterly revenue rose moderately for GCI, up 3.5% YoY from $171.5m to $177.7m in 3Q11, and its earnings showed similar improvement, up from $0.14 per share to $0.15 per share. High speed Internet services continue to generate growth for GCI, as its data revenue increased 15% YoY to $18.1m in 3Q11. The data gains offset a 10% YoY decline in quarterly voice revenue from $14.6m to $13.2m. GCI lost approximately 5.6k, or 7%, of its consumer access lines during the past twelve months.
The largest disappointment for GCI management in 3Q11 was the performance of its wireless segment, which GCI relies on for about 30% of its revenues. Its take from consumer wireless services in 3Q11 was up just 1% YoY, a period in which it invested in expanding and upgrading its networks. Meanwhile, wireless costs for the quarter were up 17% YoY, eating into its margins. In terms of subs, GCI added 2.9k consumer wireless connections over the past twelve months--a growth rate of 2%.
Ron Duncan, ceo of GCI, admitted that the underwhelming performance of its wireless segment in 3Q11 was disappointing. “Year over year (our overall) results are relatively flat and our overall performance is not as strong as we had expected. We are experiencing continued decreases in our wireline customer base, as consumers cut the cord and move to wireless, and growth in our wireless segment has been slower than anticipated.”
In other words, access line losses were expected, but so to was a subsequent jump in wireless subs and revenues as consumers replace their home phones with cell phones. It seems GCI customers are getting rid of their landlines, but they are not necessarily utilizing GCI as their wireless provider. Its main competitor, Alaska Communications (Nasdaq:ALSK), has launched its own 4G network, looking to secure its position as the top wireless provider in Alaska.
Duncan commented that there have been delays in the turn up of its new high speed wireless networks, which contributed to the lack of wireless growth. In September, the cableco launched 4G service in Anchorage, but it has planned 4G service launches in other Alaska communities that have yet to take place.
In addition to future 4G expansion, broadband growth provides GCI with expectations of improved performance in the near future. Construction of its $88 million TERRA microwave project, which will provide high speed broadband services to 10k residents in southwest Alaska, is “basically” complete according to the company. It expects to start generating revenues from this project by the end of the year.