Consolidated’s Udell: Tuck-in fiber acquisitions will further our strategic growth plans

Bob Udell (Source: Consolidated Communications)

Consolidated Communications CEO Bob Udell said that its recent Champaign Telephone Company (CTC) acquisition, which added 275 route miles of fiber and over 300 fiber-lit buildings to its footprint, will grow its fiber-centric business to serve more enterprise and carrier customers.

“We are excited about the pipeline of opportunities and we plan to use the scale and resources of our larger company to expand and grow in this market,” said Udell during the earnings call, according to a Seeking Alpha transcript. 

While the company did sell its Heartland Telecommunications Company of Iowa operations to Mutual Telephone Company and Winnebago Cooperative Telecom Association, Udell said it has no plans to sell off a large portion of its asset base.

“We're going to be looking at assets like Champaign Tel, which is a tuck-in, so it makes a lot of sense,” Udell said. “We’re looking for deals with $100 million in revenue or greater that give us a beachhead for new expansions, but I wouldn't expect to see many divestitures -- that's not part of our core strategy.”

Consolidated’s fiber network investment strategy was a key contributor to carrier and business revenue growth during the quarter. Metro Ethernet circuits grew 19 percent while adding a total of 3,000 new data connections. Consolidated’s business and broadband revenues now comprise 81 percent of the telco’s total revenues.

Udell said the metro Ethernet growth came at what has “historically been a seasonally soft quarter.” Total commercial and carrier revenues were $75.2 million, down slightly year-over-year from $76.6 in the same quarter a year ago.

The executive noted that Metro Ethernet growth is being driven by a mixture of FTTT and retail business services sales, but increasingly business sales are rising. During the quarter, the telco added nearly 200 new fiber-lit buildings with anchor tenants and 50 new fiber to the tower sites under contract.

“We're seeing a tempering on the fiber to the tower, but as you've heard across the industry, those extensions to new towers largely out of our service territory have given us the cost to build fiber network past commercial and enterprise opportunities,” Udell said. “The metro Ethernet growth that we see is predominantly in the $500 to $600 and up per month customer range with some of that moving a little bit lower than that monthly recurring revenue on those customers that are expecting growth so overall, it's the mix, with I think the trend shifting towards more of the enterprise customer.”

Total revenues for the second quarter were $186.9 million, down year-over-year from $201 million for the same period last year. Consolidated attributed the loss to the fact that strategic revenues, which include commercial, carrier and consumer broadband, were offset by declines in legacy voice revenues, network access, and subsidy step-downs from CAF II and Texas USF support.    

Within the revenue mix, Consolidated said that revenues from equipment sales were down $9 million in the second quarter of last year, including approximately $1 million in revenue from the Enventis billing company that it sold off in October. Excluding these items, revenues declined by $4.1 million, primarily due to continued erosion in legacy voice services and network access as well as the scheduled step-downs from CAF II and Texas USF.

Similar to fellow telco Cincinnati Bell, Consolidated is seeing more of its customers transition off of premises-based equipment to cloud-based services, a trend that’s cutting into equipment sales. The provider has already responded to this trend by launching cloud services in six markets earlier this year.

Consolidated CFO Steve Childers said that besides seeing some of its customers delay buying decisions they are also transitioning to cloud-based services.

“While the equipment business has been a good pull-through with over two-thirds of the equipment customers taking a network service from us, the real issue there is we've seen a softening in decisions, partially because of the economy and maybe election year, and that's partially related to the shift to the cloud,” Childers said. “We're seeing a good ramp in our pipeline for cloud services, and Cisco in particular, shifting their strategy with more focus on supplying hardware and network equipment for cloud service providers.”

For more:
- see the earnings release
- read the earnings transcript

Special report: Tracking wireline telecom earnings in Q2 2016

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