Hawaiian Telcom’s Barber: Ethernet provides 'more predictable' wholesale revenue

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Hawaiian Telcom is hoping to build a sustainable revenue model for its wholesale business by migrating more of its wireless and wireline customers to fiber-based Ethernet.

Speaking to investors during the second quarter earnings call, CEO Scott Barber said that the Ethernet revenues will continue to ramp and create ongoing returns from long-term contracts.

“When our wholesale customers, both wireline and wireless, required high-capacity bandwidth, we still migrated them to more efficient and more cost-effective fiber-based Ethernet circuits on multiyear contracts,” said Barber, according to a Seeking Alpha transcript. “Second-quarter wholesale Ethernet revenue grew 24 percent year-over-year and 75 percent over the last two years. We expect Ethernet to continue to grow and provide a more predictable wholesale revenue stream.”

A key element in its Ethernet strategy is the ongoing build out of its fiber network. This network will enable it achieve a few goals: increase Ethernet to its wholesale wireline and wireless customers while expanding solutions for the trans-Pacific market via its new submarine cable system.

Hawaiian Telcom has continued to make progress in extending fiber to more wireless towers in its footprint. As of the end of the second quarter, Hawaiian Telcom completed the buildout of fiber to 469 tower sites, with another 56 sites under contract.

Barber said that by having a fiber network already built out in a large portion of its serving area, the cost to install new sites has continued to drop.

“Because of our extensive fiber NGN network we have built over the last five years, the average cost for us to connect a cell site is significantly less than what is used to be,” Barber said. “Today approximately 86 percent of our existing cell sites are 100 megabits or higher compared to 80 percent a year ago, and a growing number of sites are being upgraded to 200 megabits and higher.”

Barber added that these “upgrades increase ARPU and help to mitigate revenue pressures from disconnects of legacy TDM circuits, which were typically lower bandwidth and on month-to-month rate.”

However, the telco was not immune to wireless backhaul revenue pressure.

Similar to other telcos like Frontier Communications, Hawaiian Telcom saw wholesale revenue drop as more of its customers shut down TDM circuits and migrated over to lower cost fiber-based Ethernet services.

As a result, second quarter wholesale revenue was $13.2 million, down $600,000 compared to the same period a year ago.

For more:
- read the Seeking Alpha earnings transcript (sub. req.)

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