Alaska Communications ends 2012 strong led by wired biz [Alaska Journal of Commerce, Anchorage]

(Alaska Journal of Commerce (Anchorage) Via Acquire Media NewsEdge) March 06--Wireline performance and business accounts contributed to a strong 2012 for Alaska Communications. The telecom ended 2012 exceeding guidance in several areas including revenue, the company reported Feb. 28 in a teleconference and webcast.

The year's revenue was $367.8 million, while the earnings before taxes, depreciation and amortization, or EBITDA, was $121.8 million.

Alaska Communications System Group Inc. President and CEO Anand Vadapalli said the company's topline performance was exemplary, particularly in core wireline, contributing to its performance.

Year over year, ACS had an 8 percent increase in business and wholesale revenues, while overall revenue grew 4.4 percent to $207.9 million.

"We believe this is industry-leading growth for wireline services," Vadapalli said.

ACS Chief Financial Officer Wayne Graham said the company's EBITDA was up $2.5 million, an 8.2 percent increase year-to-year.

Free cash flow was up $2.6 million for the quarter, with a total $33 million for the year, also higher than guidance, Graham said.

Graham said the business and wholesale increased 14 percent, which is expected to be just a precursor to 2013 performance.

Vadapalli said the company doubled its sales team to go after business customers, particularly in small- and medium-sized businesses, and has upgraded the portfolio it offers.

ACS also reduced its debt balance for the first time in three years and had a strong cash flow, Vadapalli said.

That's a trend that will continue, Graham said.

"Tomorrow, we are paying off $12.9 million dollars of debt related to our maturing 5.75 percent convertible notes," Graham said Feb. 28.

With that paid off, the next debt doesn't mature until October 2016, giving the company some flexibility in its balance sheet, he said.

Continued debt reduction will still be a focus, Vadapalli said.

But not every performance metric was strong.

Business and consumer access lines declined in the fourth quarter, although Graham noted that the business line decrease had slowed compared to the third quarter.

Vadapalli said wireless performance was discouraging, in part due to changes in the Lifeline program.

ACS lost about 6,000 wireless connections, or 4.9 percent of its connections, of which 3,100 were part of that program.

Lifeline provided federally-subsidized phones to individuals who met certain income criteria, but the federal government recently tightened the certification process for customers to participate. When the audit of customers went through, a significant amount were disqualified. Vadapalli said that although recertification is now required yearly, the company does not expect a cleanup of that magnitude again in the future.

Despite that decrease, revenue-per-customer was up 2.3 percent in the fourth quarter compared to the third.

Delayed access to the iPhone 5 also contributed to the loss in wireless customers, Graham said. Other carriers offered it in September, while ACS had to wait until December.

Vadapalli said the company also saw a shift in technology as 4G Long Term Evolution, or LTE, was launched, which caused some complexity in the supply line, and created challenges for the sales team responsible to sell both the new technology, and the old, 3G, phones and service.

The new 4G LTE is the fastest available data service in Alaska, and also provided by other carriers.

There was also a decrease of about 500 MiFi devices due to tighter usage policies and customers accessing wireless on their phones, Graham said.

Last year also saw an uptick in expenses, something the company will work to keep down for 2013.

In 2012, costs grew $22 million year over year. That was due to wireless cogs such as roaming and handsets, labor costs, including an increased focus on sales, and assorted one-time costs.

2013 forecasts Overall, modest declines in revenue are expected for 2013, compared to 2012 performance, Graham said. ACS does plan continued growth in business and wholesale revenue, however.

Graham said it's harder to provide guidance for 2013 due to several moving pieces in the company's future.

This year, Vadapalli said the company is anticipating the closing of the Alaska Wireless Network transaction, and the entrance of Verizon into the Alaska wireless market. Not knowing exactly when those will happen is tricky. Last summer, Alaska Communications and GCI agreed to merge their infrastructures to create the Alaska Wireless Network, or AWN. The companies will maintain separate retail operations, and the deal is subject to regulatory approval.

"The competition we face today will only intensify with the entry of Verizon Wireless, quite possibly in the next few months," Vadapalli said.

The Alaska Wireless Network transaction will help the company weather Verizon's entrance, Vadapalli said. It will create free cash flow, mitigating the loss of revenue from roaming, as Alaska Communications has carried Verizon's customers in Alaska.

While wireless costs could continue to grow until AWN closes, Graham said the other costs will see reduced growth.

The company will also have a decrease in its capital expenses, and a free cash flow of above $20 million for 2013.

"We expect to work hard to earn and maintain our fair share in the market," Vadapalli said.

Vadapalli also said that while he couldn't name specific customers, continued growth on the business side is expected, and the company is confident about the pipeline of new customers.

The company will also continue reducing its debt.

"Between the free cash flows from AWN and operations, we expect to end 2013 with approximately $100 million dollars lower debt balances," Graham said. "We see this translating directly into shareholder value." Molly Dischner can be reached at molly.dischner@alaskajournal.com.

___ (c)2013 the Alaska Journal of Commerce (Anchorage, Alaska) Visit the Alaska Journal of Commerce (Anchorage, Alaska) at www.alaskajournal.com Distributed by MCT Information Services

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