Consolidated's metro Ethernet revenue grows 40 percent, sees wireless backhaul gains

Consolidated Communications (Nasdaq: CNSL) found that metro Ethernet was a key source of data services growth in Q3 2013, rising 40 percent year-over-year as it expanded the service to serve more of its growing business customer base over its various network assets.

"Metro Ethernet has been a key growth driver for us and we can now offer the service in all of our markets regardless of whether it is over our fiber or copper infrastructure," said Robert J. Currey, president, CEO and director of Consolidated, during the earnings call.

During the quarter, the service provider added over 2,000 broadband connections, which Currey said helped drive its "total broadband and business revenues to 80 percent of our overall top-line."

Speaking of metro Ethernet, the service provider also continued to make progress in extending its facilities to more wireless towers. Currey said that they "turned up service on 68 new tower sites in the quarter and have over 180 under contract yet to be installed."

Another key area of growth is residential video and fiber-based broadband services. Video service connections rose 4.4 percent year-over-year to end the quarter with a total of 109,882 customers.

"So far on the residential side we are currently penetrated at 21 percent of the homes we pass," Currey said. "We still see upside there with some 30 percent penetration in our earlier markets on the legacy side and in the fiber set home areas, we are seeing upwards of 40 percent. We still think that penetration opportunity exists."

Currey added that "while we are not going to invest in 14,000 homes passed like we did in 2012 and we have shifted some of those capital investments towards what we think is better return in the commercial and the carrier areas."

The other question is how they are faring against Google Fiber (Nasdaq: GOOG) in the Kansas City market. Consolidated began competing with the Internet search giant's 1 Gbps FTTH network after it purchased SureWest last year.

"We overlapped them and about 2,500 homes passed in the [Kansas City] areas," Currey said. "But I would say that our more consultative sales approach and our higher touch in making sense out of technology for our customers and how they use our Internet service and what speed they need still seems to win favor in the market."

Outside of Kansas City, the majority of its FTTH builds have been located in new Greenfield developments in Texas, a market where Currey says they "are seeing solid economic growth." As of the end of the quarter, Consolidated had a total of 199,826 fiber-based marketable homes.

Total revenues from continuing operations were $150.8 million, down slightly from $151 million in Q3 2012. Per the industry-wide trend, increases in the telco's video, Internet and subsidy revenues were offset by declines in network access and other services revenue.

In related news, Consolidated COO Bob Udell has been promoted to president and has also been elected to the company's board of directors. Bob Currey will take on the role of chairman of the board, taking over from company founder Richard Lumpkin, who is stepping down.

Shares of Consolidated were listed at $18.70 at the end of Thursday trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- and the earnings transcript (reg. req.)

Earnings summary: Wireline telecom earnings in the third quarter of 2013

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