Robert Reich, CFO of Hawaiian Telcom (Nasdaq: HCOM), told investors that providing IPTV and 25 Mbps broadband speeds will enable it to take a big chunk of market share from the state's incumbent cable MSO Oceanic Time Warner Cable (NYSE: TWC).
Reich (Image source: Hawaiian Telcom)
Prior to launching its IPTV efforts in July 2011, Oceanic had a 95 percent share of Hawaii's video market, while Dish Network (Nasdaq: DISH) and DirecTV (Nasdaq: DTV) have less than 3 percent of the market due to the challenges of delivering satellite service in the state.
"Consumers in Hawaii have had one choice in terms of getting TV, which was Time Warner," Reich said at the Stephens Spring Investment Conference this week. "There's a huge pent up demand for any kind of choice of video provider."
Replicating AT&T's (NYSE: T) U-verse IPTV platform and a hybrid copper/fiber-based FTTN (fiber to the node) architecture, Hawtel is rolling out IPTV and 25 Mbps broadband services throughout the island of Oahu.
Initially targeting multi-dwelling units, the service provider is using VDSL2 to deliver the higher speeds and IPTV to its customers.
"In order to enhance the service, we need to expand the capabilities of the broadband network, which needs to be able deliver 25 Mbps of broadband speeds in order to ultimately deliver the video product," Reich said. "We're expanding the pace of the broadband network at a pace of about 50,000 homes per year to deliver a minimum of 25 Mbps broadband speed."
During the first quarter, Hawtel enabled 18,000 households with 25 Mbps broadband, ending the quarter with a total of 83,000 households enabled. In Q2, it hopes to enable another 17,000 homes with broadband service.
Ultimately, the telco has set a goal to reach about 250,000 homes on Oahu with broadband and IPTV.
"We'll be at 100,000 households enabled by the end of June," Reich said. "There's about 300,000 households on the island of Oahu, but we don't expect to enable all of them even though there's a lot of urban density there, because there are a lot of rural areas that are not cost effective for us to enable with broadband."
Hawtel only has 28 percent of Hawaii's broadband market share versus the 72 percent owned by Oceanic Time Warner Cable. Reich said, "there's a lot of market opportunity for us to continue to grow our broadband subscribers and ultimately enjoy that revenue stream."
By the end of the year, Hawaiian Telcom will be halfway to their target of 250,000 households.
Its broadband and IPTV efforts have been paying off.
Similar to AT&T, Hawtel's broadband speed upgrades and TV service helped offset ongoing declines in its legacy consumer voice business.
"We're seeing very strong results in terms of the take rates," Reich said. "There's a huge pent up demand for choice."
Driven by video and high-speed Internet (HSI) revenue of $1.7 million and $0.6 million, respectively, the telco's Q1 consumer wireline revenue rose 2.1 percent year-over-year to $34.6 million. This marks what it says is "the third consecutive quarter of year-over-year growth in consumer revenue."
It also added over 1,800 IPTV subscribers, ending the quarter with a total of about 11,700 subscribers. The telco passed an additional 18,000 homes with the IPTV service, bringing its total to over 83,000.
While Oceanic Time Warner has been the only game in town, it does offer a number of competitive speeds and video features. The MSO offers various speed tiers over their DOCSIS 3.0-enabled architecture: 20/2 Turbo, 30/5 Extreme, and the 50/5 Ultimate tier throughout Hawaii. In addition, Oceanic offers both single DVR and whole house DVR products throughout Hawaii.
"Since Time Warner has had a full monopoly for years, they have not needed to make big investments in the product so there's a differentiation in terms of our product," Reich said.
- hear the webcast (reg req.)
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Updated on June 9 to reflect Oceanic Time Warner Cable's Internet speeds and DVR availability.