MTS Allstream: Q3 IP service revenue gains offset by legacy service declines

MTS Allstream (Toronto: MBT) continues to see the growing pains of transforming itself from a legacy TDM-centric telephone company into an IP-centric solutions provider.

For the quarter, the service provider reported CAD 443.2 million (USD 435 million) in revenue, down slightly from Q2 2011. Revenues for the first nine months of the year were CAD 1.3 billion (USD 1.28 billion).

At MTS, the service provider's consumer division, the fruits of its higher speed broadband and video labor paid off as converged IP revenues rose 12.7 percent. Overall Internet revenues grew 8.3 percent year-over-year in Q3, while IPTV grew 19.9 percent due to fewer customers on promotional plans, subscriber growth, and price increases.

Increasingly, MTS said that they are seeing increased growth in "premium" higher speed broadband services, while Ultimate TV subscribers represent almost 60 percent of its IPTV customer base. Likewise, the service provider saw that bundled service adoption grew 3.8 percent year-over-year.

"Our customers are upgrading to higher-value services--whether it is smartphones, high-speed Internet or premium IPTV services," said Kelvin Shepherd, President of MTS. "This is solid evidence that our strategy is working."

Like MTS, Allstream's IP bet is also paying off as EBITDA rose 6.2 percent to CAD 27.5 million (USD 26.9 million) in the third quarter of 2011, which the provider says is the fourth consecutive quarter of significant year-over-year improvement. It attributed the higher EBITDA to higher gross margins from increased on-net IP sales wins and lower restructuring expenses.

During the quarter, Converged IP revenues rose 9.8 percent to CAD 59.4 million (USD 58.3 million), a figure that makes up almost 30 percent of Allstream's total revenue mix. The majority of the new IP circuits it sold in 2011--over 55 percent--were on their own network.

"Our IP strategy is working. Our sales team has done a great job and increased on-net IP sales year over year," said Dean Prevost, President of Allstream. "In the third quarter, they saw real success winning second and third contracts in newly-connected fiber-fed buildings."

Allstream added 102 buildings to its IP-based fiber network in Q3 2011, ending the quarter with 2,313 total buildings as of the end of September.

Despite the ongoing drag that legacy declines had on its Q3 results, the service provider said it is "on track to meet its 2011 financial outlook for all metrics."

For more:
- see the release (PDF)

Earnings summary: Wireline in the third quarter 2011

Related articles:
MTS Allstream's Q2 earnings improve, driving increase in 2011 revenue guidance
MTS Allstream's legacy-to-next-gen growing pains take a toll on its Q1 earnings
MTS Allstream (Toronto: MBT) Q4 revenue declines slightly amidst strong data, TV growth
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