Consolidated's Udell: 1 Gbps service gains traction, boosting interest in other speed tiers

Consolidated Communications says that while it's still very early days with its 1 Gbps fiber-to-the-home (FTTH) service rollout in Kansas City, the service is resonating with eligible users and it expects to see take rates continue to ramp throughout the rest of the year.

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Speaking to investors during the first-quarter earnings call, Bob Udell, CEO and president of Consolidated Communications, said the debut of the 1 Gbps service is having the side effect of driving interest in higher speed broadband overall.

"With respect to take rates on 1-Gigabit or the benefit that it brought us, it's really early, we're really about the quarter and a half, maybe four months into that and it's getting traction nicely, and let me tell you what is really the benefit: It's caused other conversations with our customers," Udell said during the first-quarter earnings call, according to a Seeking Alpha transcript. "And so while the Gig is of interest, few people really need that kind of speed and we're seeing that uptick and our 100-Meg or 50-Meg or 20-Meg products, and so the conversation with the customer has really been the initial best benefit from the launch but I'm sure that we'll see take rates on the Gig pick up too in the short term future."

Udell added that the penetration rate of the 1 Gbps service is around 5 percent, something that will grow as it brings it into additional markets in its service footprint. It has not revealed where and what markets will be the next to get the 1 Gbps service yet.

"It's roughly 5 percent now because it's so early and at this stage, I would have to get back to you on year end," Udell said. "I think with the momentum we're building in video capacity additions, that should more than triple by the end of the year but more to come on that as we have new market launches."

Regardless of the speeds, broadband continued to be a big seller in the telco's consumer revenue mix. Although first-quarter overall consumer revenues were $69.3 million or essentially flat year-over-year, broadband revenues rose 2.1 percent year-over-year. Similar to other larger telcos, gains in broadband revenues were offset by ongoing declines in voice services.

Udell said that the company's goal is to look to attract more residential Internet subscribers by offering a suite of higher speeds, including not only 1 Gbps, but also 100 Mbps.  

"We continue to focus our marketing efforts on acquiring and securing the Internet services into the home," Udell said. "We've expanded our 1-Gig and 100-Meg offerings and are moving customers to higher speeds which increases ARPU and lowers churn."

In particular, a growing number of Consolidated customers are subscribing to a 20 Mbps service or higher.

"Consumers taking our Internet products of 20-Meg or higher has increased from 8 percent of the customer base at this time last year to 20 percent of the customer base today," Udell said. "This excess reflects the network and product set that allowed us to be very competitive in our markets."

The telco also reported gains in the business and wholesale carrier segments. Driven by growth of Metro Ethernet and VoIP solutions, Consolidated's business service revenues rose year-over-year to $73.7 million, up 3.7 percent year-over-year.

Udell said that throughout the past year it expanded its fiber network miles by over 5 percent to 13,038 and on-net buildings by 3 percent to more than 4,800. This expansion was carried out through its own internal expansions and its acquisition of Enventis. By purchasing Enventis, the service provider immediately gained 4,200 route miles serving its facilities-based business and wholesale customers in Minnesota and into Iowa, North Dakota, South Dakota and Wisconsin. 

"These fiber expansion efforts are driving value, and our consultative sales and service approach is appealing to the commercial and enterprise customers," Udell said. "Our network footprint and leading fiber-based data products are key to the success for our topline growth in strategic sales."

Consolidated saw similar gains in its wholesale business. During the quarter it signed agreements for 200 fiber-to-the-tower sites that it are worth $30 million. In total, it now has nearly 1,100 sites under contract with a number of wireless operators.

"We have good relationships with the wireless carriers, and as we have continued to gain scale, the growth opportunities have increased," Udell said.

Company revenues were $192.6 million, down slightly from $193.9 million for the first quarter of 2014. Excluding the $1.4 million decline in equipment sales and service, revenues increased by $0.1 million. While it reported growth in its strategic business and wholesale sales, consumer revenues in the quarter remained flat year-over-year.

Shares of Consolidated were trading at $20, up 48 cents or 2.43 percent, in Friday morning trading on the Nasdaq stock exchange.

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

Special Report: Wireline telecom earnings in the first quarter of 2015

Related articles:
Consolidated's Q4 video, data connection gains offset by ongoing local voice, network access revenue declines
AT&T challenges Google Fiber, Consolidated with 1 Gbps in the Kansas City area
Consolidated poses challenge to Google Fiber with 1-Gig residential offering in Kansas City
Consolidated's Bob Udell to become CEO in January, replacing Bob Currey
Consolidated to acquire Enventis for $350M in stock, enhancing fiber network reach

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