TDS Telecom may be an advocate of fiber-based broadband, but the telco is finding success in delivering 25 Mbps and higher speeds over existing copper infrastructure by implementing bonding in areas where it can’t prove out a FTTH business case.
Vicki Villacrez, VP of finance and CFO of TDS Telecom, told investors during a second quarter earnings call that copper bonding will enable it to "drive higher data speeds in our middle-tier ILEC copper markets."
Already the results appear to be paying off as the telco noted that more of its residential customers within its ILEC territories are subscribing to speeds of 25 Mbps or higher. Specifically, the telco is seeing a 19 percent take rate for its 25 Mbps speeds and 50 percent for speeds of 10 Mbps, up from 13 and 44 percent during the same period a year ago. Getting these speeds depends on the condition of copper loops and how far a customer is from a nearby CO or remote terminal (RT).
“Reflecting both our fiber and bonded copper deployments, residential broadband customers in these ILEC markets are continuing to choose higher speeds with 50 percent choosing speed of 10 megabits or greater and 19 percent choosing speeds of 25 megabits or greater,” Villacrez said. “This will also contribute to the higher ARPUs we've been experiencing.”
Besides using copper bonding, Villacrez said TDS is also “evaluating the FCC's modified universal service funding mechanism to support broadband build out” in its remaining markets.
By gaining access to the FCC’s updated USF mechanism, TDS could gain two new paths to receive support funds in order to deliver broadband services to unserved and underserved areas.
The FCC recently released the final version of the Alternative Connect America Cost Model (A-CAM v2.3) and offered model-based Connect America funding to support rate-of-return carriers in building out voice and broadband-capable networks in their service territories. Under the new FCC’s new rules, TDS and other service providers have until Nov. 1 to tell the regulator, on a state-by-state basis, whether they want to receive model-based support.
Over the 10-year period, service providers that are eligible for model-based support must meet the FCC’s deployment obligations by providing annual reports on their progress.
TDS was offered $82.3 million over a 10-year period by the FCC and now needs to make a decision on which support action it will elect to support broadband expansion.
Villacrez said that this funding “helps us provides a better, faster, broadband service to our most rural customers,” and the telco is evaluating how it can use the program.
“Right now we're deep into the network build designs to try to better understand those economics before accepting the model support versus staying on rate of return,” Villacrez said. “And our acceptance will be on a state-by-state level and I think it's important to remember that all rate of return carriers going forward are going to have broadband build out obligations regardless of the USF option. So right now, we're making those estimates and we'll know more as we look at 2017.”
Overall, TDS Telecom broadband subscribers rose slightly to 232,200, up slightly from 231,200 in the same period a year ago.
The service provider is also making progress in expanding its IPTV base, adding 13,300 customers compared to the prior year to end the quarter with a total of 41,200 subscribers. TDS is offering an array of speeds up to 1 Gbps in all of its IPTV markets, noting that the uptick in IPTV has grown steadily and is now in an average penetration rate of almost 30 percent of its residential service addresses.
“We completed our planned IPTV market rollout last quarter, but continued to build out service in those 28 markets now enabling 180,000 service addresses,” Villacrez said. “We are completing our planned fiber builds which will reach approximately 21 percent of our ILEC service addresses. And when combined with copper service, our IPTV enabled markets will cover approximately 25 percent of our total ILEC service addresses.”
Villacrez added that for the rest “of the year, we will focus on further driving IPTV and high-speed broadband bundles in these markets.”
Similar to its larger ILEC brethren like CenturyLink, TDS Telecom is seeing more of its residential customers purchase a triple play bundle of voice, video and broadband services, enabling it to reduce churn and increase customer ARPU.
“It is important to remember that 97 percent of our IPTV customers subscribe to a triple play bundle which results in a low churn rate and continues to increase average revenues per connection, which is now up 4 percent to $43.67 in the quarter,” Villacrez said.
As it winds down its FTTH deployment, TDS Telecom expects its capital spending to decline. TDS has been rolling out FTTH network infrastructure across its network territory, focusing on enabling 25 percent of its IPTV-capable service addresses.
“We plan for capital intensity to decline this year, as we complete our fiber build out. In the quarter capital spending declined $4 million which resulted in a higher free cash flow compared to prior year,” Villacrez said.
Total TDS Telecom revenues for the second quarter were $300 million, up 2 percent from the $295 million it reported in the same period a year ago. TDS noted that residential revenues rose 4 percent as growth in IPTV and broadband more than offset the decline in legacy voice services. The year-over-year decrease in ILEC residential voice connections improved to 2 percent excluding divestiture of other select properties.
TDS Telecom’s parent company Telephone and Data Systems reported total operating revenues of $1.28 billion for the second quarter of 2016, up slightly year-over-year from $1.27 billion for the same period a year ago.
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