Consolidated says wireless operators’ unlimited wars are placing price squeeze on wholesale business

Ericsson microwave backhaul (Ericsson)
Despite the near-term challenges with pricing compression, Consolidated is still seeing tower backhaul demand rising.

Consolidated Communications is seeing the effect the four largest wireless operators and their unlimited pricing plans are having on what these carriers are willing to pay the telco for wireless backhaul circuits.

Robert Udell, CEO of Consolidated, told investors during its third-quarter call that wireless operators are making new pricing demands on their wireless backhaul suppliers and the telco is rearranging its contracts.

Udell Consolidated
Robert Udell

“If you look at the price compression that we're experiencing on the carrier front, what we're really doing is trading out some squeeze on price due to the unlimited price wars,” Udell said during the third-quarter earnings call, according to an earnings transcript.  “When you look at it in the aggregate, we still have contracts to work through that provide us opportunities for more sites and I think that we're looking still to grow that revenue line, but it's going to be temporary for the next few quarters based on the re-write still of some of those contracts.”

RELATED: Consolidated employs VDSL2+ to extend 50-100 Mbps speeds to FairPoint regions

Overall third-quarter commercial and carrier revenue dipped $3.6 million to $153.3 million. Services revenue was down $5.1 million, while data and transport were flat. Other commercial revenue increased $1.5 million. Consolidated said its wholesale carrier channel remains impacted by price compression, while commercial revenues remained flat.

Udell said that while Consolidated may not reach its 3% year-over-year goals for its commercial and carrier business segments following the FairPoint deal right away, the carrier remains confident that its ongoing fiber builds position it well to compete for new business.

“We’re being careful when we compete for that business but we're in this for the long haul and we're continuing to expand our hybrid footprint, so we think we can do a great job of offsetting those areas where we must get more competitive on price, by growing our footprint,” Udell said. “So, it's not going to be in the next year, the 3% growth that we had hoped for.”

Tower sales are rising

Despite the near-term challenges with pricing compression from wireless operators, Consolidated is still seeing tower backhaul demand rising.

During the quarter, Consolidated sold 42 new towers and upgraded bandwidth on another 87, bringing its total connected towers to 2,600.

Udell said that in its “carrier channel, we experienced solid sales results during the quarter and continue to see some activity associated with tower contracts.”

He added that more of its wireless operator customers are also inquiring about small cell and dark fiber products.

“RFP activity and active dialog continues with carriers as they consider small cell and dark fiber solutions,” Udell said. “While sales are stronger than in prior quarters, we continue to experience price compression on contract renewals due to increased competition from other fiber providers.”

Ethernet remains strong

Besides selling raw bandwidth to wireless, Ethernet continued to be a star performer in its broader commercial channel.

During the quarter, Consolidated reported Ethernet services revenues rose 8.9% for legacy Consolidated and 1.8% for the FairPoint markets, taking the company’s combined growth to 3.8%. On a year-over-year basis, combined growth in Ethernet service revenues was 10.2%.

This growth included a contract to equip a 34-site medical service practice network in Texas. The company is providing a private Ethernet network solution with gigabit capacity to be utilized for telemedicine.

Udell noted that the growth in Ethernet “is partially being offset, of course, by declining revenues for voice services.”

“Our sales teams continue to focus on expanding wallet share of our existing customers and opening more doors of prospects through solutions based selling,” Udell said. “In addition, we're leveraging our cloud services as a way of helping our target customers solve real business problems. As a result, we are seeing consistent growth in Ethernet-enabled cloud services, such as cloud-based voice, managed and secure Wi-Fi and disaster recovery solutions.”