Hawaiian Telcom’s Q3 internet services revenue takes hit on promotional pricing

Hawaii

Hawaiian Telcom saw its internet services revenues take a hit in the third quarter as certain customers came off of promotional pricing packages for broadband services. The telco’s internet services revenue declined $1.2 million year-over-year to $7.1 million as promotional pricing offer terms ended.

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At the same time, the service provider said the number of customers purchasing 21 Mbps to 1 Gbps speeds increased by 21 percent over the last year and 66 percent over the last two years.  The company ended the third quarter with approximately 91,000 Internet subscribers and customer adoption of higher speed offerings has continued to increase. 

Scott Barber, CEO of Hawaiian Telcom, told investors during the third quarter earnings call that he expects to continue offering promotional pricing as the company looks to lure more customers.

“Well, certainly our promotional pricing is tied to a term and customers return to rack-rates a after the term,” Barber said during the earnings call, according to a Seeking Alpha transcript. “But as you know we’re constantly promoting in the market, so ARPU will continue to be pressured just simply because of the consistent promotions we do in the market.”

Barber added that while the promotional pricing is an issue, Hawaiian Telcom’s move to offer more copper and FTTH-based higher speed service options could enhance customer loyalty.

“Where the value comes over the long term is when we increase people’s bandwidth speed and drive them to higher speed packages,” Barber said. “But we continue to promote with the pricing in the market to continue to gain subscribers.”

In tandem with increasing broadband speeds, Hawaiian Telcom noted that the number of triple-play customers grew 8.8 percent year-over-year and the internet attachment rate continues to be high. As of the end of September, nearly 94 percent of all video subscribers had double- or triple-play bundles with Internet. 

“TV is an important part of our consumer strategy – it continues to pull to Internet at a very high rate, allows us to provide triple-play service,” Barber said. “In the third quarter the number of triple-play customers grew 9 percent compared to the same period a year ago and 33 percent compared to the same period two years ago.”

Barber added that the telco expects to “continue to increase penetration market share in these areas with ongoing integrated marketing efforts aimed at educating customers on the benefits in fiber and to enhance segmentation and targeting.”

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

Consumer: Strategic revenue gains in next-gen services including Hawaiian Telcom TV and high-bandwidth Internet services was more than offset by the year-over-year revenue decline in consumer legacy voice and low-bandwidth DSL internet services. Hawaiian Telcom said third quarter consumer strategic revenue increased 3.4 percent year-over-year and now represents 49 percent of total consumer revenue, up from 46 percent in the same period a year ago, and 40 percent in the same period two years ago.

Business: Business revenue remained flat year-over-year at $44.8 million as revenue increases from business strategic services and equipment and managed services offset the year-over-year decline in business legacy voice services. As customer demand for high-bandwidth IP-based data services such as Ethernet, dedicated internet access, IP-VPN and BVoIP continued to rise, data services revenue rose 12.6 percent year-over-year.  One of the fastest growing segments in its next-gen business product line was BVoIP, which grew 14.3 percent year-over-year to approximately 18,600 lines, offsetting more than a third of total legacy voice access line decline.   

Revenue from data center services grew 10.8 percent year-over-year for the third quarter, driven by increased sales of Ethernet, security, and managed services. Third quarter business strategic revenue increased 12.3 percent year-over-year and now represents 38 percent of total reported business revenue, compared to 34 percent in the same period a year ago, and 32 percent in the same period two years ago. 

Wholesale: In the wholesale segment, Hawaiian Telcom continues to see revenue growing pains as more of its wholesale customers migrate off of TDM to Ethernet-based circuits. As a result, third-quarter wholesale revenue totaled $13.4 million, compared to $14.2 million in the third quarter 2015. 

Despite the near-term decline, Hawaiian Telcom continues to make progress in wiring more cell sites in its market with fiber. As of the end of the quarter, the telco said it completed fiber builds to 474 cell sites, adding that it has another 55 sites under contract to build. Nearly 87 percent of the telco’s existing cell sites today are 100 Mbps or higher compared to 80 percent a year ago and a growing number of sites are being upgraded 200 Mbps and higher.

Barber said that “these upgrades increased Ethernet ARPU and help to reduce revenue pressures from disconnects of legacy TDM circuits, which are typically lower bandwidth and on month-to-month rates.”

Hawaiian Telcom reported revenue of $97.8 million, down from $100.9 million in the third quarter of 2015. The telco said the decline was due partly to an additional $1.1 million received in 2015 for government subsidies from the FCC’s CAF-II program to expand broadband availability.