TDS deploys FTTH to 22% of its ILEC service addresses

On a sequential basis, TDS added 1,700 new IPTV customers, but lost broadband customers. Image: TDS Telecom

TDS Telecom continues to make progress on its FTTH deployment, reaching over 20% of its ILEC markets to provide speeds of up to 1 Gbps. 

Vicki Villacrez, VP of Finance and CFO for TDS Telecom, told investors during its fourth quarter earnings call that the service provider’s fiber deployment allows it to offer higher speeds and create a vehicle for its growing IPTV business.

“By the end of 2016, we had deployed fiber to the home to 22% of our ILEC service addresses,” Villacrez said during the earnings call, according to a Seeking Alpha earnings transcript. “Fiber technology allows us to provide Internet speeds of up to 1 gigabit per second.”

At the same time, the service provider is continually upgrading its existing copper network infrastructure with bonding technologies to further deepen its broadband penetration and increase ARPU.  

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“To further strengthen our broadband offerings, we have deployed copper bonding technology to an additional 20% of our ILEC service addresses to drive higher speeds in or middle tier ILEC market,” Villacrez said.

Increasing wireline penetration, ARPU

By building out more broadband access networks via copper and FTTH, the service provider can offer more customers a triple play bundle that includes broadband, voice and increasingly IPTV.

Having a full triple play bundle helps drive up average revenue per customer (ARPU) and reduce customer churn.

To date, TDS’ IPTV product is available enabling 190,000 service addresses, which is roughly 26% of its total footprint. On a sequential basis, TDS added 1,700 new IPTV customers, but lost broadband customers. The telco ended the quarter with a total of 45,300 IPTV and 229,500 broadband customers.

“We are offering a variety of speed of up to 1 gig service in all IPTV markets and the uptake on IPTV has grown steadily and is now at an average penetration rate of 30% of residential service addresses,” Villacrez said. “It is important to remember, 96% of our IPTV customers and 37% of our total ILEC residential customers subscribe to a triple play bundle, which results in a low churn rate and continues to increase average revenue per connection.”

TDS Telecom’s fourth quarter residential ARPU in its fiber and bonded copper markets was $44.27, up 3% from $44.25 in the third quarter.

Villacrez said customers in these markets are subscriber to higher broadband speeds.

“Residential broadband customers in these ILEC markets are continuing to choose higher speeds with 53% choosing speeds of 10 Mbps or greater and 22% choosing speeds of 25 megabits or greater, which also contribute to the higher ARPUs we have experienced,” Villacrez said.

Similar to other telcos like CenturyLink, TDS is seeing bundled services help the telco offset POTS voice line losses.

“One positive side effect of the increased triple play bundle is that it has moderated the losses of legacy voice lines,” Villacrez said. “The year-over-year decrease in ILEC residential voice connections was only 2%."

Looking ahead to 2017 wireline business, Villacrez said that it will continue to expand FTTH availability in existing markets and look for new markets where it can prove a desirable return on investment (ROI).

“We will focus on increasing penetration in the markets where we have already deployed fiber and continue to modestly deploy fiber where it strategically and economically makes sense and where our cost and demographic metrics support the business case,” Villacrez said. “We will leverage our copper bonding deployments to drive penetration of higher speed and IPTV in certain ILEC markets.”

Villacrez added that “we will begin executing on our broadband build out obligations under A-CAM and certain state broadband program.”

Leveraging A-CAM

While TDS Telecom will continue to invest its own capital to expand broadband, the service provider is also turning to the FCC’s alternative Connect America cost model (A-CAM) to deepen rural broadband.  

The service provider opted to participate in A-CAM, which is the FCC’s modified universal service funding (USF) mechanism for providing rate of return carriers with support funds to extend broadband services to unserved and underserved areas.

In January, TDS elected to accept about $75.1 million a year for the next 10 years from the A-CAM program to expand rural broadband availability. This replaced about $50 million of annual support that TDS received in 2016.

Additionally, TDS will receive $7 million in transitional support funds in certain states, bringing its total 2017 support to $82 million. This support comes with an obligation that TDS builds defined broadband speeds to reach about 160,000 locations.

“The revised offer to TDS maintains the obligation to build defined broadband speed for the same number of locations,” Villacrez said. “However, the speed requirements for certain locations were reduced.”

Villacrez said that TDS’ “estimated buildout cost will be incorporated into our capital expenditure guidance we provide each year, and for 2017 we expect that amount to be approximately $36 million.”

Here’s a breakdown of TDS’ key metrics:

Wireline: As it continued to increase broadband speeds and the TDS Telecom’s wireline revenues were $174 million, up slightly year-over-year from $173 million in the same period a year ago.  

TDS Telecom reported that residential revenues were $78 million, up from $72 million in the fourth quarter of 2015. However, commercial and wholesale revenues declined year-over-year to $52 and $44 million, respectively.

TDS Telecom’s overall wireline revenues for 2016 were $1.15 billion for 2016, down from $1.16 billion in 2015.

Cable: TDS Telecom’s cable revenues were $49 million, up from $43 million a year ago.

HMS: Hosted and Managed revenues were $61 million, down 10% year-over-year from $69 million in the same period a year ago. The service provider reported that service revenues remained flat at $28 million.

Financials: TDS Telecom reported $283 million in fourth quarter operating revenues. TDS Telecom’s parent company Telephone and Data Systems reported total operating revenues of $1.28 billion million for the fourth quarter of 2016, up slightly from $1.27 billion for the comparable period one year ago.