Cincinnati Bell continues to make headway with its fiber network expansion, reaching 70% of the homes and businesses in greater Cincinnati.
Leigh Fox, CEO and president of Cincinnati Bell, told investors during the telco’s fourth-quarter earnings call that its bet on deploying fiber across its footprint has paid off.
“Our early decision to accelerate our regional fiber build has created a unique network, capable of continually producing higher bandwidth and faster internet speeds than our competition,” Fox said during the earnings call, according to a Seeking Alpha transcript. “Today, our fiber density footprint differentiates us from traditional carriers and allowed us to overcome legacy declines each quarter of 2017. Strong demand for fiber based products drove a year-over-year increase in strategic revenue of 11% and 15% for the fourth quarter and full year respectively.”
Cincinnati Bell’s Fioptics revenue grew 22% during the year, illustrating what Fox says its “ability to win where we have fiber” amidst “continued intense marketing and advertising efforts from our primary competitor.”
During the fourth quarter, Cincinnati Bell added 5,400 Fioptics Internet subscribers and ended the year with about 227,000 total subscribers with penetration rates reaching 40% and ARPU increasing 3% year-over-year.
Likewise, the service provider added 3,000 new Fioptics video customers in the fourth quarter, ending 2017 with approximately 147,000 total subscribers. Cincinnati Bell said penetration rates and video churn remained largely consistent with the year and ARPU increased to $88.
But the fiber expansion is not just about Cincinnati alone. The service provider plans to enhance Hawaiian Telcom’s network when it completes that deal later this year.
“As our expansion of the fiber strategy, we believe the combination with Hawaiian Telcom provides us an opportunity to replicate Cincinnati Bell's success across the state of Hawaii,” Fox said. “Together, the combined networks will exceed 14,000 fiber route miles, reinforcing our ability to win with fiber and capture market share.”
A key part of the fiber expansion in Cincinnati is to stay on pace or ahead of its main competitor Charter. Since the cable operator entered the Cincinnati market following its acquisition of Time Warner Cable, the MSO has become more aggressive with service promotions and raising speed tiers.
In areas where Cincinnati Bell has built out its FTTH network—one that’s capable of delivering up to 1 Gbps speeds—the service provider is leading with a 400 Mbps speed tier. Meanwhile, the service provider’s top offer in its fiber to the node (FTTN) areas, the telco’s high-speed tier tops at 50 Mbps.
“If you look at the fiber to the premises area where we lead with 400 meg, we're very competitive in that area,” said Tom Simpson, COO for Cincinnati Bell. “We use the speed as a currency to help drive up penetration. In the fiber to node area, which is really the remainder of 25% of the strategic market, the new norm is our 50 meg offer and in some of those areas that is adequate. But that's why we continue to look at continued investment in fiber builds.”
The battle between Charter and Cincinnati Bell, particularly on the broadband side, will get hotter this year as the cable MSO moves forward with its DOCSIS 3.1 expansion to deliver 1 Gbps over its existing HFC plant.
Following its initial launch in Oahu, Hawaii—a market that Cincinnati Bell will enter upon completing its Hawaiian Telcom acquisition this year—the cable MSO activated service in New York and six other markets. Since Cincinnati was part of that initial DOCSIS 3.1 push, Cincinnati Bell will continue to enhance its FTTH offerings with various speed tiers ranging from 400 Mbps to 1 Gbps.
Simpson said most of the subscribers it has lured over to its FTTH service are customers that have churned away from a cable competitor.
“The vast majority of the subscribers that we have from a net basis are coming from the competition,” Simpson said. “We’re increasing our market share, and we have majority of the market share in the fiber areas. Where we are building fiber in neighborhoods that have legacy products that is a modest call back. But again, we’re seeing high penetration mix from the competition.”
Fioptics, strategic services dominate revenues
During the fourth quarter, the star performer in Cincinnati Bell’s portfolio was the Entertainment and Communications group, which houses Fioptics.
The fiber expansion is affecting the service provider’s strategic business and carrier services lines. As of the end of the fourth quarter, 50% of commercial units have been updated with fiber. Likewise, the telco now provides wireless tower backhaul services to approximatively 70% of 1,000 towers in Cincinnati.
Here’s a breakdown of Cincinnati Bell’s key metrics:
Entertainment and Communications: Revenue totaled $197 million for the fourth quarter of 2017 and $790 million for the full year, up $4 million and $21 million year-over-year, respectively. Fioptics revenue totaled $80 million for the fourth quarter, a 17% increase year-over-year, and $310 million for the full year, a 22% increase compared to a year ago.
Business and Carrier: Strategic revenue for business and carrier customer revenue totaled $55 million for the fourth quarter and $217 million for the full year, up 7% and 9% year-over-year, respectively. However, legacy losses continue to be an issue for Cincinnati Bell’s business and carrier divisions as total revenue declined 1% and 3% to $286 and $100 million, respectively
IT Services and Hardware: IT Services and Hardware revenue totaled $233 million for the fourth quarter of 2017 and $512 million for the full year, up $138 million and $81 million year-over-year, respectively. IT Services and Hardware revenue in the fourth quarter reflects a $150 million contribution from the OnX acquisition, which Cincinnati Bell said mitigated the ongoing declines in hardware sales as well as cost cutting initiatives by a large customer.
Within the IT Services and hardware segment, strategic revenue totaled $72 million for the fourth quarter, including $32 million from the OnX acquisition. Full year strategic revenue totaled $199 million up 1% year-over-year. Driven by the incremental contribution from OnX, Telecom and IT hardware revenue was $155 million for the fourth quarter of 2017, up $118 million compared to the prior year period. Full year Telecom and IT hardware revenue was $280 million, up $75 million compared to the prior year.
Financials: Cincinnati Bell reported consolidated revenue for the fourth quarter of 2017 was $427 million, up year-over-year from $285 million in the prior period. Adjusted EBITDA was $78 million for the quarter, up $4 million from a year ago. Total strategic revenue in the fourth quarter was $201 million. For the full year of 2017, Cincinnati Bell generated strong strategic revenue of $705 million, up 11% compared to 2016.
For the year, Cincinnati Bell reported revenue totaled $1.29 billion, slightly below guidance range due to the declining lower margin hardware sales. However, the service provider generated adjusted EBITDA of $303 million and positive free cash flow of $28 million, both in line with our financial guidance.