Entries in ILEC Connections Mix (2)


Broadband Share of ILEC Connections Nears 20%

3Q11 Connections: ILEC Connections Mix

While the publicly traded ILECs shed 10.3% of their access lines YoY in 3Q11, wireline voice subs on average still accounted for 50.1% of total connections for ILECs in the quarter. That percentage however is likely to dip below 50% in the near future as more consumers do away with their home phone and the penetration of video and Internet services continues to improve.

Within our sample of ILECs, there are two distinct groups with vastly different connection mix makeups: those with a wireless service and those without. For the seven LECs in our sample that offer wireless service, wireless subs accounted for 61% of connections on average in 3Q11. Aside from the wireless giants—AT&T (NYSE:T) and Verizon (NYSE:VZ)—the LECs experienced minimal growth or stable declines in wireless as a share of total subs over the past two years. Telephone and Data Systems (NYSE:TDS) reported the samples highest wireless percentage of 85.6%, thanks to its majority owned subsidiary US Cellular (NYSE:USM), while at the low end Cincinnati Bell’s (NYSE:CBB) wireless share was 33.4%.

For those without wireless operations, wireline voice connections continued to dominate the service mixes in 3Q11. Wireline voice accounted for a sample high 80.5% of connections at Hawaiian Telcom (Nasdaq:HCOM) followed closely by Fairpoint (Nasdaq:FRP) at 77.2%. Overall, voice connections as a share of total connections on average has slipped 8% from 3Q09 to 3Q11. NTELOS (Nasdaq:NTLS) was the outlier in the sample, expanding its share of voice connections YoY to 26% in 3Q11. The increase was the result of its FiberNet purchase, but in recent quarters its voice share has slipped.

Along with declining access lines, the other near unanimous trend for the public LECs has been their greater reliance on broadband Internet services. On average, broadband subs made up 19.2% of connections for ILECs in 3Q11, up from 18.3% in 3Q10. AT&T and Verizon were the only LECs to report YoY declines in broadband as a share of total connections in 3Q11, but only because the pair grew their wireless subs at a much faster pace. Windstream (Nasdaq:WIN) reported the highest percentage of broadband connections in its mix at 30.9% in 3Q11, followed by Warwick Valley (Nasdaq:WWVY) at 29.9%. At the low end, broadband subs accounted for only 3.9% and 5.7% of connections for TDS and NTELOS in 3Q11.

Video subs once again represented the smallest share of overall connections for the LECs in 3Q11 at 8.9% on average, but for nearly all LECs that percentage is on the rise. With the exception of Shenandoah Telecommunications, which has actually lost video subs since the beginning of the year, all LECs offering a video service reported a higher percentage of video connections in its mix YoY in 3Q11. New Ulm Telecom’s (OTC:NULM) reflected the highest percentage of video subs in its mix at 21.8% in 3Q11, while video subs at NTELOS and Cincinnati Bell represented only 0.6% and 3% of total connections.


2Q11 Connections: ILEC Connections Mix

ILEC Connection Mix Shifts to Video and Broadband

For publicly-traded ILECs across the board, voice connections as a percentage of total connections fell YoY in 2Q11, as the telcos shift to video and data services. While wireless accounted for the largest share of connection mix for the ILECs that are also wireless providers, only the giants experienced any significant growth in wireless as a percentage of connections mix.

Wireless connections represented 53.3% of total connections on average in 2Q11 for the eight LECs in our sample that offer wireless to customers. Over a two year period, AT&T (NYSE:T) and Verizon (NYSE:VZ) have shifted their connection mixes increasingly towards wireless: between 2Q09 and 2Q11, wireless share of connections increased from 52.6% to 61% at AT&T, and from 62.7% to 71.1% at Verizon. Telephone and Data Systems’ (NYSE:TDS) wireless percentage also ticked up slightly to 85.6% in 2Q11, but the other five LECs experienced wireless percentage declines.

Despite widespread access line losses, wireline voice connections on average still accounted for 50.5% of the total connection mix for ILECs in 2Q11. Hawaiian Telecom reported the highest percentage of voice connections at 80%, and wireline voice also accounted for more the 70% of the connections mixes at Fairpoint (Nasdaq:FRP), Frontier (NYSE:FTR) and Otelco (Nasdaq:OTT). Of these four telcos, only Hawaiian Telecom also offers wireless to its customers (only 1.4% of total connections).

NTELOS (Nasdaq:NTLS) was the lone LEC in the sample to increase its voice percentage YoY in 2Q11—voice connections growing from 15.6% to 26% of its mix. NTELOS doubled its voice subs in 4Q10, adding 85k access lines through its 4Q10 acquisition of FiberNet, but has lost 900 voice connections in the first six months of 2011.

The mean video share of connection mix rose from 7.7% to 8.8% YoY, with all 14 LECs offering television service reporting higher percentages of video connections in 2Q11. New Ulm Telecom’s (OTC:NULM) continued to reflect the highest percentage of video subs in its mix at 21.6% in 2Q11. Elsewhere, Shenandoah Telecom (Nasdaq:SHEN) increased its video connections from 8.0% to 13.95% of its total connections YoY, thanks to cable system acquisitions from JetBroadband in 3Q10 and Suddenlink in 4Q10. At the low end, despite adding FiOS and U-verse customers in 2Q11, video still represents only 3%-4% of total connections for Verizon and AT&T.

On average, broadband subs made up about 19% of connections for ILECs in 2Q11, up from 17.9% in 2Q10. Windstream (Nasdaq:WIN) reported the highest percentage of broadband connections in its mix at 30.5% in 2Q11, followed closely by SureWest (Nasdaq:SURW) and Warwick Valley (Nasdaq:WWVY) at 29.4%. Meanwhile, broadband subs accounted for only 3.8% and 5.4% of connections for TDS and NTELOS in 2Q11.