WOW says the pending sale of its Chicago fiber network to Verizon put it into a better position to expand business services while shedding an asset it did not see as strategic to its broader goals.
Earlier this month, WOW agreed to sell its fiber network in the Chicago market to Verizon for $225 million in cash. In addition, the company and Verizon entered into a new agreement pursuant to which the company will complete the fiber build-out for $50 million.
WOW anticipates the remaining build will be completed in the second half of next year.
“We were able to monetize our network at a much higher valuation, and we’ll still be able to sell SMB services on it based on a wholesale agreement with Verizon,” said Steven Cochran, CEO of WOW, during the second-quarter earnings call.
Cochran said that the sale to Verizon will enable WOW to be more targeted in how it serves business and wholesale customers.
“The transition that’s happening with our business allows us to continue to become more efficient with the business,” Cochran said. “It allows to us to continue to have a higher margin base in general, whether it’s a combination of making up a greater residential or commercial becoming a greater piece of the overall mix.”
Cochran added that “the fiber sale to Verizon won’t have a huge impact on margins.”
Backhaul shows potential
While WOW initially built the Chicago fiber network to satisfy a wireless backhaul customer, WOW continues to see wireless backhaul as being a key part of its commercial business revenue mix.
The service provider has continued to sell a mix of lit services like Ethernet and dark fiber to wireless operators in its territory.
“As we think about dark fiber, fiber to the tower in general has been a good business for us,” Cochran said. “We’ve done a lot of it in the Southeast where we have partnered with other providers, and, helping them, we partnered in builds to build it more efficiently in places because we could build it more efficiently because of access to poles.”
Similar to other fiber providers like Zayo, WOW sees the potential in leveraging and extending the fiber network assets to deliver other business services.
“Similar to what we have done with selling to customers that purchase $500 to $1000 a month in services, our sales force continues to have access and sell to that in a much greater footprint in Chicago than what we had before we started that project,” Cochran said.
Business services rise
At the same time, WOW continues to see success in the commercial wholesale and business segments, which leverage its wide array of HFC and fiber assets.
WOW’s business services subscription revenue, including acquisitions and dispositions, also increased 12.1% year over year to $28.7 million. Overall second-quarter business services revenue rose 6.7% year over year.
“We’re encouraged by the continued success of this area of the business,” Cochran said. “Sales during the quarter, which translated into revenues as the services are installed represented the best quarter on record for WOW commercial sales organization.”
The service provider also continued to innovate on the product side, introducing a new SIP trunking over HFC option. The new service allows business customers to upgrade their existing VoIP-PBX connections with a Session Initiation Protocol Trunk (SIP Trunk) service. WOW also offers a fiber-based option.
Cochran said that the introduction of SIP trunking over HFC will also raise the service provider's profile with business customers looking for alternative sources to migrate from TDM to IP-based voice.
“We introduced HFC-supported SIP trunks, which further expands our commercial voice opportunity,” Cochran said.
However, other business services revenue declined 22.1% year over year to $10.6 million. This was due to what the company said was pass-through revenue related to the one-time issue involving construction of its wireless backhaul project.
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Total revenue for the company declined 1.6% to $297.5 million, a factor it says was driven primarily by video and telephony RGU losses experienced over the quarter and lower pass-through revenue, offset by increases in ARPU and business services subscription revenue growth.