Cincinnati Bell has set another bold FTTH expansion plan for 2017 with an aim to pass 35,000 new addresses in Cincinnati, Ohio, with Fioptics FTTH service.
Upon completion, this latest build will extend FTTH coverage to over 70% of Greater Cincinnati.
Speaking to investors during the fourth-quarter earnings call, Andy Kaiser, CFO of Cincinnati Bell, said the latest FTTH expansion is all about getting a favorable return on investment.
“The capital spending range is driven by success-based capital,” Kaiser said. “Part of that is Fioptics, but also other strategic investments that we intend to make through the year provided that we see the returns.”
But this latest round of Fioptics expansion isn’t just about consumers. The new build will be used to win back or enhance the value of existing customers that it could only serve today with copper-based DSL or T-1s.
“The focus would be in-market and it is fiber opportunities from a business perspective,” Kaiser said. “As we reach 70% penetration likely by the end of 2017 on the consumer front, we’re looking at a lot of opportunities from a business perspective to build out fiber.”
Reining in FTTH activation costs
Cincinnati Bell, like other FTTH providers, is seeing the costs to pass and install homes to the FTTH network continue to drop.
In 2016, the telecom company said it cost about $850 to pass each home in Cincinnati, which was 15% better than it originally anticipated.
“We continue to see opportunities to build at a reduced cost,” Kaiser said.
Similarly, from a customer installation perspective, Cincinnati Bell said it costs about $800-$900 per customer.
As FTTH build-out costs come down, Cincinnati Bell is seeing decent penetration rates for its Fioptics internet and video services.
In addressing the 100,000 locations it passed in 2016, Cincinnati Bell saw about 26% penetration for video and 37% for internet services.
“In the areas that are passed matures from year one, we see high speed internet penetration in the mid-20s and by year four it is pushing 50%,” Kaiser said. “From a video perspective it’s low mid-20s in year one and year four that’s low to mid-30s.”
Accelerating copper to fiber migration
During the process of expanding its FTTH network, Cincinnati Bell is identifying opportunities to further reduce costs associated with the legacy copper network.
As part of this ongoing process to migrate from copper to fiber, Cincinnati Bell offered a voluntary retirement program to employees that work on its copper network.
“In order to balance the required maintenance of our legacy copper network with the growth opportunities from our strategic product offerings, we offered a voluntary severance program that resulted in charges during 2016 and the first quarter of 2017,” said Ted Torbeck, CEO of Cincinnati Bell. “Once fully implemented, the impact of these cost reduction initiatives is expected to generate cost savings of $10 million annually.”
Cincinnati Bell’s operating income was down from a year ago due primarily to additional depreciation expense associated with accelerating its fiber investments and initiatives to reduce future costs associated with the legacy copper network.
Leigh Fox, COO and president of Cincinnati Bell, said these cost reductions from the copper to fiber transition will continue to ramp throughout 2017 and beyond.
“We have teams dedicated to legacy cost out and you saw that in fourth quarter and you’ll see that again in the first quarter,” Fox said. “As we penetrate further with fiber there’s a huge opportunity to take that legacy network out and fundamentally transition and transform the network.”
Here’s a breakdown of Cincinnati Bell’s key operating metrics:
Entertainment and Communications: Entertainment and Communications revenue was $193 million for the quarter and $769 million for the full year, up $5 million and $25 million, respectively, from the same periods in 2015.
Fioptics again was the star in the Entertainment and Communications portfolio as revenue rose 33% during 2016 compared to a year ago, totaling $69 million for the quarter and $254 million for the year.
Total internet subscribers now surpass 300,000, increasing 15,800 compared to a year ago. Fioptics video subscribers totaled 137,600 at the end of 2016, up 20% compared to the prior year. After passing 101,400 additional units during 2016, Fioptics is now available to 533,400 addresses.
Finally, strategic business and wholesale carrier customer revenue totaled $51 million for the quarter and $198 million for the full year, up $6 million and $23 million, respectively.
IT Services and Hardware: IT Services and Hardware revenue for the quarter was $96 million, down $9 million from the fourth quarter of 2015 due to declines in lower margin Telecom and IT hardware revenue. For the full year 2016, revenue was $431 million, compared to $435 million in 2015.
Strategic revenue was $49 million in the quarter, up 3% over the prior year. Full year strategic revenue was $197 million, up 10% compared to a year ago.
Telecom and IT hardware revenue was $38 million for the quarter, compared to $49 million in the fourth quarter of 2015. Full-year Telecom and IT hardware revenue was $206 million, down $25 million compared with the prior year.
Financials: Fourth-quarter consolidated revenue totaled $285 million, down 1% compared with the prior year.
Cincinnati Bell reported that consolidated revenue rose $18 million year-over-year. Revenue from strategic products was up 19% year-over-year.
Year-to-date consolidated revenue was $1.2 billion, up 2% compared to a year ago.
Looking toward 2017, Cincinnati Bell has forecast revenue for the year to be $1.2 billion.