TDS Telecom completing FTTH buildout to 21 percent of ILEC service addresses

TDS Telecom continues to deepen its FTTH network build with a plan to reach a large portion of its largely rural incumbent carrier footprint, offering several bandwidth options that range from 100 Mbps to 1 Gbps, as well as IPTV.

Speaking to investors during its first quarter earnings call, Vicki Villacrez, VP of finance and CFO of TDS Telecom, said that the service provider is going to use a mix of fiber-based and emerging copper-based technologies like bonding to offer higher speeds and IPTV services to more customers.

"We are completing our planned fiber builds to reach approximately 21 percent of our ILEC service addresses, and when combined with copper service, our IPTV-enabled markets cover approximately 25 percent of our service addresses," Villacrez said during the earnings call, according to a Thomson Reuters earnings transcript. "For the remainder of the year we will focus on driving IPTV and high-speed broadband bundles in these markets. To further strengthen our broadband offerings we are deploying bonding technology to an additional one-third of our ILEC service addresses to drive higher speeds in our middle-tier ILEC copper markets."

Meanwhile, in other ILEC markets TDS said it is looking at how it can leverage the FCC's modified universal service fund (USF) mechanism to support rural broadband builds. Through the new USF model, service providers have two ways to receive funds: a voluntary model-based approach and a legacy mechanism option.

The voluntary model-based approach is something TDS could elect on a state-by-state level, and includes a fixed amount of support for a 10-year period in exchange for meeting defined buildout obligations for broadband services.

The legacy mechanism option -- created when the FCC reformed the existing Interstate Common Line support mechanism -- provides support for standalone broadband, now known as the Connect America Fund Broadband Loop.

During the quarter, TDS continued to see more subscribers purchase higher broadband and IPTV services.

In particular, TDS is seeing take rates increase for 10 Mbps and higher broadband services and it rolled out IPTV to one new market. TDS' TDS TV service is no available in 28 markets with 174,000 service addresses enabled for the service.

Whether it was on its FTTH or bonded copper, TDS is seeing more of its customer base purchase higher speeds. At the same time, a large majority of the telco's IPTV customers are subscribing to a triple play bundle, driving up its consumer subscriber ARPU.

"It is important to remember, 97 percent of our IPTV customers take all three services, which results in a low churn rate and drove an increase in average revenue per connection up, to $43.28 in the quarter," Villacrez said. "Reflecting both our fiber and bonded copper deployments, residential broadband customers are continuing to choose higher speeds in our ILEC markets, with 49 percent choosing speeds of 10 MB or greater, and 18 percent choosing speeds of 25 MB or greater, which also contributes to the higher ARPU."

As of the end of the quarter, TDS Telecom had a total of 229,100 broadband subscribers and 38,300 IPTV subscribers, up year-over-year from 228,500 and 34,400 subscribers, respectively, in the same period a year ago.

TDS Telecom saw wireline connections rise sequentially to 585,800, down from 588,400 in the same period a year ago. On year-over-year basis, voice connections fell to 318,400 from 333,400 while broadband connections fell to 229,100 from 229,400. However, IPTV marked strong gains, to 38,300 from 25,600. Residential revenue per connection was $43.28, up from $42.32 in the same period a year ago.

Total TDS Telecom operating revenues were $281 million, up slightly year-over-year from $281 million in the first quarter of 2015.

On a segment basis, TDS Telecom reported that residential revenues rose 2 percent to $76 million.

Villacrez noted that "growth in broadband and IPTV more than offset the decline in our legacy voice services" and that the "year-over-year decrease in ILEC residential voice connection has held at about 3 percent over the past seven quarters, excluding divestitures."

However, commercial and wholesale revenues declined 4 and 5 percent to $54 million and $43 million, respectively.

TDS Telecom's parent company Telephone and Data Systems reported total operating revenues of $1.24 billion for the first quarter of 2016, down year-over-year from $1.25 billion in the first quarter of 2015.

For more:
- see the earnings release
- here's the earnings transcript

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

Related articles:
TDS Telecom says it has overcome 9-state outage, but customers still reporting issues
TDS to deploy fiber to 25 percent of homes in territory by mid-2016
TDS says its rate-of-change expenses are higher due to lack of wholesale competition
TDS closes in on 2015 FTTH goals with 1 Gig launch in Tipton, Ind.
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