Consolidated's Q1 asset maneuvers boost its fiber migration strategy

dark fiber

Consolidated is moving through a time of transition as it purchased Champaign Telephone Company (CTC) to increase its footprint while selling its rural ILEC company in Iowa to Premier Communications and Winnebago Cooperative Telephone Association.

Bob Udell, Consolidated

Udell

Speaking to investors during its first quarter earnings call, Bob Udell, CEO of Consolidated Communications, said that these deals "move us further down the fiber migration path."

Reflecting the service provider's desire to acquire complementary fiber assets, the service provider purchased CTC, which provides communication services to businesses and enterprises over its fiber network throughout the Champaign-Urbana, Illinois, area.

Upon completing this acquisition in the second or third quarter, CTC's assets will add 275 route miles of fiber and over 300 on-net buildings to Consolidated's portfolio.

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"This is an attractive tuck-in opportunity for us to expand our existing Illinois footprint into a growing market that's underpinned by education and healthcare," Udell said. "We're excited about the potential of this market and the opportunities to build upon the strong platform the team at Champaign Telephone has already created. And we expect to close the transaction in second or third quarter."

Earlier this week, Consolidated reached a deal to sell its rural ILEC company in northwest Iowa to Premier Communications and Winnebago Cooperative Telephone Association for about $22.5 million in cash.  

"Consistent with our strategic focus, we recently announced the sale of our rural northwest Iowa ILEC," Udell said. "The buyers are also located in the northwest Iowa region and are well-positioned to ensure that customers continue to receive advanced products and services. The ILEC produced roughly $7 million in revenue last year."

Consolidated revenue by category and channel

Q1 2016 revenues by category and channel. (Source: Consolidated investor presentation)

During the quarter, the service provider saw gains in its commercial and carrier and its consumer segments.

Driven by gains in Ethernet and cloud services, total commercial and carrier revenues were $76.6 million. Within the segment, data and transport service revenue was $49.1 million, up year-over-year from $46.1 million in the same period a year ago. However, per the industrywide trend, voice services revenue declined to $25 million from $26.1 million in the first quarter of 2015.

To pursue new commercial and carrier business opportunities, Consolidated also increased its fiber route network miles (long-haul and metro) as well as on-net buildings. The service provider's fiber route miles rose 5.9 percent or 774 miles year-over-year to end the quarter with a total of 13,812 miles. Likewise, the telco increased on-net building reach by 8.7 percent, or a total of 420 buildings, totaling 5,224 buildings.

"We had another strong quarter of metro Ethernet circuit gains with year-over-year growth of nearly 20 percent," Udell said.

In the consumer segment, total revenues were $69 million, down slightly year-over-year from $69.3 million in the same period a year ago with broadband revenues declining and voice service revenues down.

Broadband revenue was $55 million, up from $53.7 million, while voice service revenue declined to $14.4 million from $15.5 million.

Overall data and video connections rose 2.9 and 7.1 percent to 459,597 and 114,485, respectively. On the broadband front, Udell said that it continues to see more of its customers adopting higher broadband speeds.  

"We added 3,500 net data connections and continue to move customers to higher speed packages," Udell said. "We are well positioned competitively with 89 percent of marketable homes capable of receiving 20-meg or higher speeds."

Total company revenues were $188.8 million, compared to $192.6 million for the same period last year. Consolidated noted that strong growth in strategic sales channels offset declines in voice services, subsidies and network access revenues.    

Income from operations was $24.3 million, compared to $26.7 million in the first quarter of 2015.  The decline is primarily attributable to lower revenue and higher depreciation expense.

For more:
- see the earnings release
- see the Seeking Alpha earnings transcript

Special report: Verizon and Frontier begin new transitions: Tracking wireline telecom earnings in Q1 2016

Related articles:
Consolidated Communications acquires CTC for $13M, enhances fiber, on-net building reach
Consolidated makes 100 Mbps, greater speeds available to 42% of customer base
Consolidated's business, broadband services help it beat Q4 estimates, offset voice, video declines
Consolidated's Udell: We won't lead in metered broadband
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