Cincinnati Bell's pending sale of its wireless assets may be a sign of the challenge regional wireless operators face in competing against behemoths like AT&T Mobility (NYSE: T). But the other part of the story is that it will free up resources to enhance Fioptics, its growing consumer fiber-based broadband service, and its business and wholesale arms.
Ted Torbeck, CEO and president of Cincinnati Bell, summed it up well in a release announcing the deal earlier this week: "This transaction not only ensures that our customers have access to top-tier wireless service, but it also gives us increased flexibility to meet their growing demand for our Fioptics suite of products."
At a little over 5 years old, Fioptics is still relatively young, but it has become a lucrative revenue source for the incumbent telco as it sees its traditional POTS voice business erode every quarter.
In the fourth quarter of 2013, Fioptics revenues rose 49 percent year-over-year to $29 million. It also added 4,500 new Fioptics entertainment customers and a total of 19,100 in 2013 to end the year with a total of 74,200 subscribers. Out of that figure, it now has a total of 80,000 Fioptics data customers. What's more, during the past year Fioptics passed 71,000 units and gained 29 percent penetration.
Setting the tone for potential future growth, CFO Leigh Fox revealed during the Raymond James 35th Annual Institutional Investors Conference in March that the company sees a path to about 60 to 70 percent of Cincinnati being covered with Fioptics.
Besides consumers, Fioptics is also gaining traction with small to medium businesses (SMBs) that are in need of higher speed services to support their own adoption of cloud services.
This is not the first time a wireline operator decided to shed a declining wireless business.
SureWest, which was acquired by Consolidated Communications in 2012, sold off its wireless assets to Verizon Wireless (NYSE: VZ) in 2008. Like Cincinnati Bell, it turned its focus on expanding its broadband business, including its FTTH network and purchasing Everest Broadband, which gave it a presence in Kansas City, Mo.
Later, Lumos Networks became a wireline-centric company when nTelos decided in late 2010 to separate its wireless and wireline operations into two separate companies. Since then, the rural telco has been expanding its fiber network in western Pennsylvania and other parts of Virginia for its growing mix of enterprise and wholesale carrier customers.
While fiber has become a sound platform to provide higher speed residential broadband service, it is also a key tool in its wholesale and business portfolios.
Being the incumbent operator, Cincinnati Bell is also one of the Cincinnati area's largest backhaul and business service providers. Today, the service provider has built out fiber to 550 towers and provides service to more than 70 percent of the 1,100 towers in its operating territory. Likewise, it lit 100 multi-tenant units (MTUs) with fiber in 2013, ending the year with a total of 500 MTUs. All of these connections are tied to a 5,700 route mile fiber network.
Having these assets in place gives it an advantage with strong brand recognition, but competitors like tw telecom and Fibertech Networks have established a strong foothold in the Cincinnati market. Meanwhile, Fibertech completed a network expansion in Ohio targeting not only Cincinnati, but also Akron, Cleveland, Columbus, Dayton and Toledo.
Since these initiatives are relatively new, it will take time to see the true competitive impact of these players' moves. It's not hard to expect that Cincinnati Bell will be aggressive in finding ways to maintain existing business and in winning new business and wholesale accounts.
Once it does complete the wireless divestiture, the question is what will be its next move? Could it follow the path of Consolidated and acquire another fellow ILEC to expand into new markets or continue an organic growth path?
Whatever the decision, it's clear that once the wireless deal is done, it will have a greater ability to hone its wireline skills.--Sean