Shentel fiber sales drive to $10M as E-Rate, tower business rise

Shentel's wireline network success in the first quarter, which contributed to the provider's net income rise of 35 percent year over year to $13.9 million, was driven by fiber sales to schools via the FCC's E-Rate program and to wireless operators in its region.

"We have been incredibly successful at school systems and E-Rate," said Earle MacKenzie, EVP and COO, during Shentel's first quarter earnings call, according to a Seeking Alpha transcript. "If you look at the school systems that we have connected or are working to put connection and looking at our fiber footprint, it's pretty impressive."

Such a trend should not be all that surprising.

Under the FCC's E-Rate order that was issued in 2015, the eligible services list was updated to support the equal treatment of lit and dark fiber services. The change allows local school districts to purchase either kind of service depending on their specific needs via an FCC Form 470 application.

MacKenzie said that Shentel plans to expand fiber sales by dedicating more resources to the group. 

"We are actually adding a couple of new salespeople this year in our fiber sales group," MacKenzie said. "And so we see a good opportunity to leverage that fiber that ... is so critical for us from a strategic standpoint as far as our wireless and cable business. But because we do have more than adequate capacity, we are able to sell it to third parties with very nice margins."

Fiber sales were a key element of Shentel's first quarter wireline results. Shentel reported that fiber lease revenues rose over 25 percent year-over-year to $10 million and its 157 wireless towers generated $1.9 million in OIBDA from sell-side lease revenue which was up 9.5 percent compared to last year's first quarter.

Fiber lease revenues included $5.6 million in cable and wireline affiliate revenue and $4.4 million in non-affiliate revenue.

No less compelling was external fiber lease revenue from its wireline and cable segments, which totaled $7 million in the quarter. Cable reported $2.2 million in fiber revenue while wireline reported $4.8 million.

Carrier access and fiber revenue for the quarter was $12 million, an increase from $9.5 million for the same quarter last year due to Shentel winning a series of new fiber contracts. 

Operating expenses increased 13 percent or $1.5 million to $13.3 million for first quarter 2016, primarily due to costs to support new fiber contracts.

On the residential side, Shentel reported voice access lines dropped 9.2 percent over the past 12 months as a result of no longer requiring DSL customers to purchase a voice line.

"Virtually all the access lines lost are customers that continue to purchase internet service from Shentel," said Adele Skolits, CFO and VP of finance. "Without the bundled discount, each of these customers is paying at least $10 more for their Internet service."

In addition, Shentel started offering customers a cable modem Internet option of up to 101 Mbps in October 2015.

Skolits said that "as of the end of the first quarter, we had 624 signed up for the higher speed cable modem services."

Overall wireline revenue rose 17.9 percent to $18.4 million in the first quarter of 2016, up from $15.6 million in the first quarter of 2015.  Adjusted OIBDA for the wireline segment was $8.3 million, as compared to $6.9 million in first quarter 2015.

Total operating income was $21.3 million, an increase of 15 percent from the same quarter last year.

Shentel attributes its overall growth to cable and wireline segments and incremental tax benefits resulting from the adoption of new accounting guidance related to stock compensation transactions. 

For more:
- see the earnings release
- here's the Seeking Alpha transcript (reg. req.)

Special Report: Verizon and Frontier begin new transitions: Tracking wireline telecom earnings in Q1 2016

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