Hawaiian Telcom reaches 175K homes with fiber-based broadband

Hawaiian Telcom has been making strides with its FTTH rollout, extending service to a total of 175,000 homes in the second quarter.

Speaking to investors during a quarterly earnings call, Scott Barber, CEO of Hawaiian Telcom said the FTTH build, including the rollout of its new 1 Gbps speed tier, is gaining momentum.

"At the end of the second quarter, we had 175,000 next-generation fiber households enabled, with approximately 58 percent of those households capable of using FTTH technology," Barber said. "FTTH technology enabled us to offer the fastest service in the marketplace when we launched our 1 Gbps speed in June."

Barber said that while no single device in a user's home will support 1 Gbps, the proliferation of multiple devices will be a good fit for such a service.

"We try to tell people that there's no device in the home that will ever run at 1 Gbps, but if you have multiple phones running at 100 Mbps, PC running at 150 Mbps and have a smart TV and try to shove all of those devices onto a narrow two-lane highway you're going to end up with congestion," Barber. "The 1 Gbps product is essentially a multi-lane highway that all those devices can run as fast as they want."

Another factor in the FTTH and IPTV rollouts was securing contracts with bulk MDUs (multi-dwelling units). During the quarter, the telco signed 7 additional bulk MDU contracts, giving it an additional 900 units. It now has a total of 49 bulk MDU buildings and 9,000 units under contract.  

Barber said that "about 7,200 units were installed as June 30 with the remainder to be installed over the next 18 months based on the timing of the respective contract commitments."

In addition, Hawaiian Telcom is taking its FTTH service set to new Greenfield housing developments.

"Besides bulk MDUs and single-family homes, we've been active in pursuing non-bulk MDUs," Barber said. "We've have had good success so far going head to head with our competitor in Greenfield FTTH projects where we can bundle unmatched Internet speeds with our superior video product."

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

Consumer: Driven by growth in its TV and high-speed Internet services, second quarter consumer revenue growth was $37.9 million, up 4.2 percent year-over-year. Revenue growth in video and high speed Internet (HSI) services continues to more than offset lower revenue from legacy POTS voice services, and combined video and HSI services now represent 43 percent of consumer revenue, up from 36 percent in the same period a year ago, and 28 percent in the same period two years ago.

Video services revenue grew to $8.3 million in the second quarter, up from $5.5 million in the second quarter of 2014, due to the addition of about 8,800 subscribers to end the period with a total of approximately 31,900 subscribers. Hawaiian Telcom TV average revenue per user (ARPU) was up approximately 6.5 percent year-over-year.  It enabled 9,000 additional households during quarter, increasing the total penetration to about 18.2 percent at the end of the second quarter. 

Led by a 2.1 percent year-over-year increase in consumer HSI (high speed Internet) subscribers to approximately 93,300 and a 4.3 percent increase in consumer HSI ARPU due to increased adoption of higher speed offerings, consumer HSI revenues also improved year-over-year. Nearly 93 percent of all video subscribers had purchased a double or triple-play bundle that included HSI, TV and voice services. Revenue increases from video and HSI more than offset legacy revenue declines related to consumer voice access and long distance line losses of 9.6 percent and 9.4 percent year-over-year, respectively.

Business: Business revenue rose slightly to $41.2 million, up from $42.1 million in the same period a year ago. Similar to its larger counterparts AT&T (NYSE: T) and Verizon (NYSE: VZ), Hawaiian Telcom reported that its 19.8 percent increase in data center revenue and a 1.5 percent increase in business HSI customers was "more than offset by the year-over-year decline in legacy business access and long distance revenues."

However, the continual demand for higher bandwidth services and integrated communications solutions and next-generation services now represent 31 percent of business revenue, up from 29 percent in the same period a year ago.

The service provider's bets on IP-based services continue bear fruit as it won a contract with a large government agency that covers their two data centers and over 250 locations. Leveraging its fiber network, Hawaiian Telcom will provide 10 Gbps Ethernet backbone pipes to support Internet access services and managed services at each location.

Wholesale: Hawaiian Telcom's second quarter wholesale revenues were $15 million, down from $15.8 million in the same period a year ago. As a result of special one-time customer charges in the second quarter of 2014, wholesale carrier data revenue was $13.8 million, compared to $14.3 million in the same period a year ago. Finally, switched carrier access revenue declined $0.3 million year-over-year to $1.2 million, a factor it attributes to both the overall decline in voice access lines and minutes of use and the impact of inter-carrier compensation reform.

IP-based wireless backhaul continued to be a factor in the wholesale channel as the telco connected 434 cell sites to its fiber network, which equates to $6.3 million in annualized revenue. It currently has 125 additional sites under contract to build and is pursuing other additional sites.

"As demand for wireless broadband continues to increase, we continue to receive requests for capacity upgrades from wireless carriers," Barber said. "Fifty percent of the cell sites we initially provisioned with 50 Mbps have been upgraded to 100 Mbps or higher and approximately 80 percent of our cell sites served are 100 Mbps or higher or are being upgraded to 200 Mbps and more."

At the same time it is seeing strong carrier customer demand for its role in the new South-East Asia-United States (SEA-US) cable system that will go live in 2017. It has already gotten commitments from service providers and content providers that will purchase capacity on its portion of the submarine cable system, coming close to $30 million in sales.

"We've got a funnel larger that's much larger than the $30 million," Barber said. "Carriers are checking pricing and doing their long-term planning, so the timing varies by carrier with some not buying capacity until the system is up and running or some won't go contract enforce, which we did in March."

Overall second quarter revenue was $96.2 million, down from $96.8 million in the second quarter of 2014.  The company said revenue growth in the quarter, which was driven by video, HSI, and data center and cloud services, was offset by the impact from a 6 percent decline in access lines and a $0.5 million decrease in wholesale carrier data revenue, primarily due to special one-time customer charges in 2014. 

Shares of Hawaiian Telcom were listed at $24.00 at the close of Tuesday afternoon trading on the Nasdaq stock exchange.  

For more:
- see the earnings release
- listen to the earnings call (reg req.)

Special report: Wireline telecom earnings in the second quarter of 2015

Related articles:
Hawaiian Telcom says SEA-US submarine cable producing nearly $30M in sales
Hawaiian Telcom's Barber: 1 Gbps creates awareness of all broadband tiers
Hawaiian Telcom taps Barber to be next president and CEO
Broadband providers' 1 Gig rollouts drive consumer 'halo effect' in speed tiers
Hawaiian Telcom to deliver 1-Gig service to Hawaii