Hawaiian Telcom: Adoption of 21 Mbps to 1 Gbps speeds grows 16.5%

Hawaiian Telcom is reaping the rewards of its ongoing FTTH rollout as more customers are adopting higher speeds between 21 Mbps and 1 Gbps, a trend that illustrates the importance consumers have placed on broadband.

Scott Barber, CEO of Hawaiian Telcom, told investors during its second-quarter earnings call that users in these speed brackets continue to grow.

“The number of internet subscribers on speeds 21 megabits and up grew 17% year-over-year,” Barber said during the earnings call, according to a Seeking Alpha transcript. “In particular, the number of customers with fiber-to-the-home speeds, 100 megabits to 1 gigabit, grew at an impressive rate of 70% year-over-year.

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As of the end of June, Hawaiian Telcom noted that about 95% of all video subscribers had double- or triple-play bundles with internet. On Oahu, where the focus of the company’s next-generation network (NGN) fiber investment has been and where Hawaiian Telcom TV service is offered, the total number of internet subscribers continues to increase year over year.

Barber said that customer demand for Hawaiian Telcom internet continued to be driven by TV attachment and higher data speeds.

As of the end of the second quarter, 95% of all video subscribers had double- or triple-play bundles with internet,” Barber said.

CAF-II on track

Besides leveraging its own capital to expand its FTTH footprint, Hawaiian Telcom is finding customer adoption from its Connect America Fund (CAF)-II buildouts. In 2015, Hawaiian Telcom accepted $26 million in CAF-II funding to extend 10/1 Mbps capable broadband service to more than 11,000 unserved rural locations.

Interestingly, Hawaiian Telcom’s move to bring fiber to businesses on neighboring islands where it is conducting CAF-II builds is benefiting consumers that reside along the path of the fiber builds.

“When we build the fiber network up to these CAF neighborhoods, we're upgrading our network along the way and passing businesses and updating—upgrading our residential areas along the way,” Barber said. “We've certainly seen the benefit of building those neighborhoods and starting to see the benefit of that indirect upgrade of the network along the way.

This is a bit of a different trend than what it has seen on Oahu, where small to medium businesses (SMBs) have been seeing benefits from the consumer build.

During the quarter, Hawaiian Telcom is leveraging its existing fiber footprint that was built for consumers to enable 1,600 targeted small business addresses with 1 Gbps service. This brings the company's total fiber-enabled small business address footprint to about 8,600 statewide at the end of the second quarter.

“We continue to experience high take rates, accelerated broadband usage and increased customer demand for higher bandwidth,” Barber said. “By the end of this year, our plan is to fiber-enable another 2,000 targeted business addresses, while continuing to supplement this with pair bonding and deploying technologies, such as G.fast when available to areas where it makes sense.”

Mixed business, consumer, wholesale results

Overall, Hawaiian Telcom reported a mixed set of results across its three segments—business, consumer and wholesale—as legacy declines continued to hamper next-gen service gains.

Here’s a breakdown of Hawaiian Telcom’s key metrics:

Business: Second-quarter business revenue was $41.7 million, down $5 million from the same period a year ago, primarily due to $3.5 million in non-recurring revenues associated with a large government agency recorded in the second quarter of 2016 and lower year-over-year equipment revenue, mostly related to one-time equipment sales for a large hospitality customer in the prior year period. Additionally, the year-over-year decline in legacy voice and low-bandwidth internet services contributed to the decline in business revenue. The service provider said these decreases were partly offset by a 13.4% year-over-year increase in business VoIP revenue driven by higher demand for Hawaiian Telcom’s hosted voice and data bundle.

To support the growing demand for data bandwidth and cloud adoption, the company deployed fiber GPON technology to further leverage its NGN to nearly 1,600 additional small business addresses in the quarter, providing customers access to 1 Gigabit internet service. This brings Hawaiian Telcom’s total fiber-GPON-enabled business addresses to approximately 8,600 at the end of the second quarter. Business strategic revenue now represents 40% of total reported business revenue, compared to 34% in the same period two years ago.

Consumer: Second-quarter consumer revenue totaled $33.8 million, compared to $36.0 million in the second quarter of 2016. Revenue growth in the quarter from Hawaiian Telcom TV and high-bandwidth fiber internet services was more than offset by the year-over-year revenue decline in consumer legacy voice and low-bandwidth copper internet services. Second-quarter consumer strategic revenue increased nearly 1% year over year and now represents 52% of total consumer revenue, up from 45% in the same period two years ago.

One area of growth in the consumer channel was Hawaiian Telcom TV. Video services revenue grew 8.1% year over year to $10.8 million for the quarter and has become a $44 million and growing annualized revenue stream. Video subscribers grew 12% during the same period and the company ended the second quarter with about 43,200 subscribers in service. During the second quarter, the company fiber-enabled 1,000 additional consumer households on Oahu, including success-based bulk MDU units and greenfield single-family homes, bringing total NGN households to 204,000, or approximately two-thirds of total marketable households on Oahu.

Wholesale: Second-quarter wholesale revenue totaled $12.6 million, down $0.6 million compared to second quarter 2016. Revenue growth from wholesale high-bandwidth Ethernet services on multiyear contracts was more than offset by the revenue decline from certain wholesale customers disconnecting low-bandwidth, less efficient legacy circuits on month-to-month service, as well as reductions in rates for certain wireless carriers in exchange for extended terms.

Financials: Hawaiian Telcom reported second-quarter revenue of $91.3 million, down from $99.5 million in the second quarter of 2016. The service provider said the year-over-year decrease was due to one-time revenues from a large government agency recorded in the second quarter of 2016, lower enterprise equipment sales and revenue declines associated with legacy voice and low-bandwidth internet services offsetting revenue increases from consumer video, business VoIP, and high-bandwidth business and consumer internet services.