Cincinnati Bell continues to find fortune in its growing fiber-to-the-premises (FTTP) business Fioptics, one that CEO Ted Torbeck said will be a key point of expansion throughout this year with plans to ultimately expand coverage to 70-80 percent of its serving footprint.
In 2014, Cincinnati Bell increased the footprint of Fioptics throughout Cincinnati to reach 59,000 units with the service. The Fioptics suite of products is now available to 335,000 residential and business customers, more than 40 percent of Greater Cincinnati.
Torbeck told investors during the fourth-quarter earnings call that the sale of its wireless business to Verizon gives it more freedom to focus more on extending Fioptics to more customers.
"The completion of the wireless transaction and our strategy for monetizing Cyrus One has increased operational and capital flexibility and also provides us with the ability to focus on our fiber investments," Torbeck said. "Our Fioptics suite of products is currently available to 40 percent of greater Cincinnati and we plan to expand that coverage to 70-80 percent over the next few years."
This year the service provider plans to pass 100,000 homes with Fioptics.
Leigh Fox, CFO of Cincinnati Bell, said this expansion effort which will cost between $80 million and $85 million, "will expand our coverage to approximately 55 percent of Greater Cincinnati."
Fioptics was a key contributor in its fourth-quarter 2014 wireline revenue mix, rising 40 percent year-over-year to $40 million for the quarter and $142 million for the year 2014.
The service provider reported ongoing gains in both Fioptics video and Internet subscribers.
On the video side, Cincinnati Bell added 3,600 new Fioptics video subscribers and 17,200 for the year. In total, the service provider ended the year with 91,400 Fioptics video subscribers, up 23 percent from the same period a year ago. Likewise, the Fioptics Internet subscriber base rose 40 percent year-over-year, adding 7,000 new Fioptics Internet subscribers in the quarter and 33,800 for the year.
Torbeck acknowledged that while the Fioptics TV subscriber base did not grow as fast as its broadband service offering, the company's main goal is on getting higher speeds, including its 1 Gbps service, to more homes.
"One of the initiatives is to get out there quicker with the Internet is the need for speed so we have put a strong emphasis on that and that's why you're seeing that increase in Internet adds," Torbeck said.
While the residential Fioptics service was clearly the revenue frontrunner, Cincinnati Bell reported that "strong enterprise demand for hardware and strategic products" generated IT Services and Hardware Segment year-over-year revenue growth of $89 million.
For the quarter, IT Services and Hardware Segment revenue was $110 million, up $23 million from the fourth quarter of 2013, while full-year revenue was $433 million, up 26 percent compared to the prior year.
Inside the IT Services and Hardware segment, Cincinnati Bell reported gains in both strategic managed professional services and hardware revenue. Strategic managed and professional services revenue was $37 million in the quarter and $139 million for the full year, both up 17 percent compared to 2013. Hardware revenue was $71 million for the quarter, up 32 percent year-over-year and full-year hardware revenue was $288 million, up 29 percent compared to 2013.
Due to the gains in Fioptics and strategic business services, total wireline strategic revenue and overall wireline revenue rose sharply.
Wireline strategic revenue was $311 million in 2014, up 23 percent over 2013, with growth from these products outpacing declines in legacy data and residential POTS voice service each quarter in 2014. Overall wireline revenue was $188 million for the quarter and $741 million for the full year, up $6 million and $16 million, respectively, from the same periods in 2013.
Cincinnati Bell's Fioptics growth was in line with analyst expectations that the wireline market will be its key source of growth.
"The company's wireline segment remains its prime growth driver buoyed by a strong Fioptics business," wrote Zacks Equity Research in a report. "Further, the acquisition of CyrusOne should support high demand for data center colocation service."
However, Zacks cautioned that Cincinnati Bell continues to swim against the strong tide of legacy voice losses, while the sale of its wireless business eliminates another revenue source.
Cincinnati Bell ended the quarter with a total of 480,600 traditional local voice access lines, down from 492,800 in the third quarter of 2014, while long-distance lines declined sequentially to 362,800 from 371,400 in the previous quarter.
"Cincinnati Bell continues to experience erosion in high margin local access lines," Zacks wrote. "Moreover, the carrier is winding up its wireless operations amid constant subscriber loss to national carriers, thus removing a recurring revenue stream."
Overall consolidated revenue was $1.3 billion, up 3 percent over 2013 as demand for strategic products and increased hardware sales more than offset declines in wireless revenue and legacy products. Strategic revenue totaled $436 million for the year, up 21 percent year-over-year, while fourth-quarter 2014 consolidated revenue was $308 million.
Looking forward, the service provider has forecast 2015 revenues of $1.1 billion and adjusted EBITDA of $297 million.
Shares of Cincinnati Bell were listed at $3.33, up 14 cents or 4.39 percent, in early Thursday morning trading on the New York Stock Exchange.
- see the earnings release
- hear the earnings webcast (reg. req.)
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Updated article with additional information from Cincinnati Bell on Feb. 19.