Hawaiian Telcom considers G.fast for rural areas as CAF-II boosts wholesale revenue to $17.2M

Hawaiian Telcom is making progress with its FTTH initiative, making it possible for nearly 60 percent of enabled homes in Oahu to get the 1 Gbps speed tier while eyeing new technologies such as G.fast and VDSL2 to increase speeds on its copper network.

Speaking to investors during the third-quarter earnings call, Scott Barber, CEO of Hawaiian Telcom, said that the provider wants to create a two-pronged last-mile foundation that enables it to deliver higher speed broadband IP applications.

"In terms of footprint at the end of the third quarter we had 183,000 next generation households enabled on Oahu approximately 60 percent of which are capable of utilizing fiber-to-home technology which can receive an unmatched 1 gig internet speed," Barber said. "We continue to see strong high speed Internet (HSI) take rates in our next generation fiber footprint and we're preparing to deploy technologies that will increased Internet speed over our remain copper network."

Barber said that it plans to wrap up its FTTH rollout to between 230,000 to 235,000 homes, but provided no specific timeframe. It also expects to sign an additional 3,000 to 5,000 Greenfield homes or multi-dwelling units (MDU) over the next few years.

"We will probably wrap up the program build in the early part of '17, there might a little bit of spillover at end of '16 and then we expect that there'll probably be 3,000 to 5,000 new Greenfield homes or MDU bulk agreements that will come line over the remaining 3 or 4 years," Barber said. "The amount of capex associated with it pales in comparisons to the program."

But FTTH technology is just one part of its overall broadband expansion strategy.

While he could not provide specific details, Barber said that Hawaiian Telcom is examining G.fast technologies to deliver higher speed services in rural areas. Some carriers like BT (NYSE: BT) have been able to reach close to 1 Gbps in test environments.

"We'll have additional NGN obviously and then CAF-II will support as we're monitoring with G.fast ... and there is a couple of companies that have rolled that out," Barber said. "So for example if you've got VDSL loops that can get you just 30 meg out of 3,000 feet, they're actually seeing in the lab the G.fast can take out 1,000 feet and get you close to a gig. And so we're monitoring those technologies and working with our vendors to see when we can deploy that."

Barber added that in the near-term, the service provider will leverage copper bonding technologies to achieve the 10 Mbps broadband mandate in the rural areas it will serve via the CAF-II program. "The first thing will be bonded modem technologies next year and as well as additional growth in NGN and CAF II," he said.

Here's a breakdown of the company's key metrics:

Consumer: Driven by growth in its TV and high-speed Internet services, third-quarter consumer revenue was $38.1 million, up 2.5 percent year-over-year. The company noted that revenue growth from broadband Internet services continues to offset lower revenue from legacy services, and combined video and HSI services now represent 44 percent of consumer revenue, up from 38 percent in the same period a year ago, and 30 percent in the same period two years ago.

Video services revenue grew to $8.7 million, up 32.9 percent from $6.5 million in the third quarter of 2014 due to the addition of about 8,200 subscribers for a total of approximately 34,000 subscribers at the end of the third quarter. In tandem with the video services growth, Hawaiian Telcom enabled 8,000 additional households with fiber, increasing the total number of households enabled to 183,000 with approximately 59 percent of those households capable of using fiber-to-the-premise (FTTP) technology. Hawaiian Telcom TV penetration of households enabled increased to approximately 18.6 percent at the end of the third quarter.

Due to growing adoption of higher speed offerings, consumer HSI revenue rose 1 percent year-over-year while consumer HSI ARPU rose 4.6 percent as a result of increased adoption of higher speed offerings. Total consumer HSI subscribers rose 1 percent year-over-year to nearly 93,200 and a 4.6. As of the end of September, about 93 percent of all video subscribers had double- or triple-play bundles with HSI. Revenue increases from video and HSI continued to more than offset legacy revenue declines related to consumer voice access and long distance line losses.

Business: Business revenue rose 3.9 percent year-over-year to $43.4 million, a factor it said was partly due to a $1.2 million increase in equipment and managed services revenue. Growth in next-generation services, including a 9.8 percent year-over-year increase in business data revenue, an 11.1 percent increase in data center revenue, and higher business HSI revenue as a result of a 1.4 percent year-over-year increase in business HSI customers, also contributed to total business growth.

As businesses increasingly adopt higher bandwidth services and integrated communications solutions, Hawaiian Telcom said that next-generation services now represent 31 percent of business revenue, up from 29 percent in the same period a year ago. The service provider said that the increases in next-generation services and higher speed HSI revenues "more than offset the year-over-year declines in legacy business access and long distance revenues."

Wholesale: Hawaiian Telcom reported that wholesale revenue rose 9 percent to $17.2 million, a factor it said was due to $2.2 million in CAF-II support it got from the FCC. Similar to earlier quarters, wholesale carrier data revenues declined $200,000 year-over-year to $14.2 million, mainly due to certain wireless carriers disconnecting lower bandwidth legacy circuits on month-to-month contracts and moving to fiber-based, higher bandwidth Ethernet circuits on multi-year contracts.

Finally, switched carrier access and subsidies revenue increased $1.6 million year-over-year to $3 million, mainly from the CAF-II support, partially offset by the impact of the overall decline in voice access lines and minutes of use, along with the impact of intercarrier compensation reform.

Hawaiian Telcom reported that third quarter revenue of $101 million represented a 3.8 percent increase compared with $97.3 million in the third quarter of 2014. Revenue growth in the quarter, driven by video, equipment and managed services, and $2.2 million of CAF II support more than offset the impact from an expected 5.9 percent decline in access lines.

For more:
- see the earnings release

Special report: Tracking wireline telecom earnings in Q3 2015

Related articles:
Hawaiian Telcom accepts $26M in CAF II funds to extend broadband to 11K new locations
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This article was updated with additional information on subscriber numbers from Hawaiian Telcom on Nov. 10.