Hawaiian Telcom's Q3 legacy declines offset by broadband, IPTV gains

Hawaiian Telcom reported that while it continued to see IPTV, broadband and data center colocation service growth in the third quarter, these gains were offset by a decline in managed revenues and expected legacy POTS voice access line revenue, driving down overall revenue slightly year-over-year to $97.3 million.

Next-gen service growth was offset by a $2.4 million decrease in equipment and managed services revenue, related to lower customer premise equipment sales, and a 5.7 percent decline in legacy POTS voice access lines. 

The company's adjusted EBITDA was $29.0 million, down $1 million year-over-year, a factor it said was due to increased direct cost of services related to video.

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

Consumer: Consumer segment revenue rose 5.2 percent year-over-year to $37.1 million due to growth from two of its strategic services, Hawaiian Telcom TV and high speed Internet (HSI) services.

Video revenue grew to $6.5 million in the quarter, up from $3.7 million in the same period a year ago, driven by the addition of approximately 10,000 subscribers for a total of about 25,800 subscribers at the end of the third quarter. Hawaiian Telcom TV average revenue per user (ARPU) rose about 5.7 percent year-over-year and 5.9 percent sequentially to $89 a month. During the quarter, the telco enabled another 10,000 additional households with its IPTV service, increasing the total number of households enabled to 152,000 with over 53 percent of those households capable of connecting directly to the telco's next-generation fiber network. As of the end of the third quarter, Hawaiian Telcom TV household penetration was nearly 17 percent.

Consumer HSI revenue rose year-over-year due to a 2.2 percent year-over-year increase in HSI subscribers to a total of about 92,300 and a 9.5 percent in consumer HSI ARPU. The telco said that as of the end of September, nearly 53 percent of all video subscribers had triple-play bundles and approximately 92 percent had double- or triple-play bundles. However, the uptick in video and HSI revenues was partially offset by legacy revenue declines related to consumer voice access and long distance line losses of 8.6 percent and 7.9 percent, respectively.

Business: Business service revenues were $41.7 million, down 1 million from the same period a year ago, mainly due to a $2.4 million year-over-year decline in equipment and managed services revenue, which it said was "mostly related to a $2.3 million sale of equipment to a large Hawaiʻi-based public school in Q3 2013." 

Similar to the consumer segment, the year-over-year decline in legacy business access and long distance revenues contributed to the decline in business revenue. However, these decreases were largely offset by $2.2 million of incremental net revenue added as a result of the SystemMetrics acquisition and a 3.0 percent year-over-year increase in business data revenue driven by higher demand for IP-based data services.

Wholesale: Like its larger ILEC brothers CenturyLink and Verizon, Hawaiian Telcom may be seeing more of its wireless customer base migrate from copper-based TDM circuits to fiber-based Ethernet, but that migration continues to pose a near-term revenue strain as third-quarter wholesale revenue totaled $15.8 million, down $0.7 million from the same period a year ago. Likewise, wholesale carrier data revenue declined $0.4 million year-over-year to $14.4 million, mainly due to certain wireless carriers disconnecting lower bandwidth legacy circuits, which were replaced with new, more efficient fiber-based, higher bandwidth Ethernet circuits. As of the end of the quarter, Hawaiian Telcom brought its fiber to 376 cell sites. 

"Our investment in Fiber-to-the-Tower (FTTT) projects and the demand for network capacity in the form of special access circuits drove sequential growth in the wholesale channel for the first time in almost two years, so we are seeing positive results there as well," said Eric Yeaman, CEO of Hawaiian Telcom, in the earnings release.

At the same time, switched carrier access revenue declined $0.2 million year-over-year to $1.4 million, a factor it says is equally attributable to the overall decline in voice access lines and minutes of use and the impact of intercarrier compensation reform.

Shares of Hawaiian Telcom were listed at $26.60, down 40 cents or 1.48 percent, in Monday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special report:  Wireline telecom earnings in the third quarter of 2014

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