Strong fourth quarter for GCI leads to record 2012 revenue [Alaska Journal of Commerce, Anchorage]

(Alaska Journal of Commerce (Anchorage) Via Acquire Media NewsEdge) March 13--General Communications Inc. revenue hit record levels in 2012, although results were mixed within its various business segments.

GCI revenue was $710.2 million, up $30.8 million compared to 2011, a 4.5 percent increase, GCI Chief Financial Officer John Lowber said in a March 7 investor call regarding 2012 fourth quarter and annual performance.

The company's earnings before interest, taxes, depreciation and amortization, or EBITDA, was up 1.4 percent compared to the prior year, at $262.8 million.

A strong fourth quarter helped drive GCI's full-year results.

"We normally expect fourth quarter revenue to decrease sequentially, but this year it was the strongest quarter of the year," Lowber said.

For the fourth quarter, overall performance improved compared to the prior quarter. Typically, Alaska telecoms GCI and Alaska Communications book higher revenues in the third quarter based on carrying roaming traffic for summer tourists.

Lowber said roaming, handset costs, the FCC cap of remote, urban Universal Service Fund, and more stringent Lifeline requirements all took a toll on the company's margin.

Lifeline provides 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.

Lowber said the company thinks Lifeline erosion has likely stabilized.

Throughout the company's performance, various sectors balanced each other out.

"Wireless roaming revenues are compensating for the decline in voice revenues," Lowber said. In the consumer segment, GCI's adjusted EBITDA was affected by a loss of wireline connections and a loss of video subscribers, although data performance partially mitigated those, Lowber said.

In the fourth quarter, GCI had a decrease of 2,900 local service lines, and an increase of 2,500 cable modems. For 2012 overall, local service lines dropped 7,900 and 7,300 cable modems were added.

On the wireless side, the company had a net gain of 3,300 non-Lifeline wireless connections on the consumer side, and 400 on the commercial side. Those offset Lifeline wireless losses, putting the company at 140,000 wireless handsets in 2012 compared to 139,900 in 2011.

Also on the consumer side, GCI had an increase in HD DVR converter boxes, and 100 additional basic video subscribers.

But the adjusted EBITDA for consumer revenue was down overall, with a 19.8 percent decrease compared to 2011.

For commercial revenue, the EBIDTA was up $4.7 million compared to 2011.

That was driven by the addition of local access lines, cable modems and wireless handsets, Lowber said.

Commercial revenue was up 11.8 percent compared to the fourth quarter of 2011, and 6.5 percent sequentially. Every commercial metric but voice saw that increase in revenue, Lowber said.

The company added 200 local access lines, 100 video subscribers, 2,200 cable modems and 1,700 wireless handsets in 2012 compared to 2011.

Managed broadband revenues also increased by $23.3 million, or 36.9 percent compared to 2011, largely due to the new TERRA-Southwest network.

TERRA-Southwest added 400 miles of new fiber-optic cable, and accompanying microwave towers, in rural Alaska, expanding the company's broadband connection to 65 communities from Bristol Bay to the Yukon-Kuskokwim Delta.

The TERRA network uses a terrestrial connection, which reduces the latency inherent in satellite-based systems. That latency comes from the time it takes for communication between land-based users and satellites positioned above the earth.

Lowber said 2012 was the first year of operations for the TERRA expansion, and it had excellent results.

The primary users so far include schools, libraries and healthcare, along with residential customers.

The company is continuing its TERRA expansion into Northwest Alaska. Next, GCI will extend the terrestrial backbone to Nome, which will set the stage for future expansions.

Funding for the TERRA project has come largely from New Market Tax Credits, Lowber said. That provided about $16.5 million initially, while the Regulatory Commission of Alaska chipped in $6.3 million. Additional new markets transactions last year landed the company about $15.8 million, Lowber said.

So far, Terra has been under budget and on schedule. The Nome connection is expected to be operational in early 2014, and the company is ready to start on the next phase, which will expand TERRA to Kotzebue.

"Mountaintop construction will begin this summer," Lowber said. That should take two years, and go live at the end of 2014.

All in, TERRA has a price tag of about $60 million. About $40 million has come from external sources, mostly the new markets program.

GCI Executive Vice President Greg Chapados said that when it's completed, the TERRA-Northwest will be a substantial addition to the TERRA network, but will not entirely double the number of people it serves. TERRA-Southwest added about 30,000 people, while the Northwest component will add a smaller number.

Other work at GCI is also under way that benefitted the bottom line in 2012, and will continue to do so.

"Wireless expansion continues to be a major focus with expenditures of approximately $35 million dollars planned for this year," Lowber said. "Investments are being made to expand geographic coverage and to increase data speeds. We're also investing in additional backhaul facilities and turning up additional turbozone access points." GCI's expansions in 2013 included 1,300 turbozone wi-fi access points, LTE coverage in Anchorage, expanded data storage and a new cloud based service.

Soon, the company will deploy 4G LTE coverage in Fairbanks and Juneau, Lowber said. LTE stands for long term evolution, which is the fastest coverage offered in Alaska, a step up from regular 4G, which relies on High Speed Packet Access+ technology. ACS and AT&T also offer LTE in Anchorage and Juneau, and Alaska Communications has the data coverage in Fairbanks, as well.

GCI also entered into a joint agreement with Alaska Communications in mid-2012 to form a new Alaska Wireless Network, or AWN. The two companies want to merge their infrastructures, but would maintain separate retail operations. The deal is subject to regulatory approval.

Lowber said the benefits of the new network are a reduction in duplicated efforts, increased infrastructure and a larger wireless spectrum. That should help both companies compete when Verizon enters the Alaska wireless market, likely sometime this year.

AWN is expected to close at the end of the second quarter, Lowber said.

Like Alaska Communications last week, GCI told investors that it cannot provide 2013 guidance yet. Both telecommunications companies are waiting to see when the Alaska Wireless Network transaction closes.

Lowber said that's not just a formality -- the transaction will change things, and all the exact details can't be determined until it is approved.

GCI did, however, provide information about its planned capital expenditures for 2013. Total, the company plans to spend about $150 million on core capital expenses, excluding restricted cash that's intended for the TERRA project. The expenditures will include $35.5 million for wireless/backhaul, $11.8 to extend fiber further into the business community, $16.7 million on broadband, and money for other efforts and projects.

Another action pending approval is the broadcast acquisition by Denali Media, a GCI subsidiary. The company wants to buy three television stations -- one in Anchorage, and two in Southeast Alaska.

Lowber said the company wants to provide a new statewide platform for news and information as well as the means to provide unique content.

A coalition of other broadcasters throughout the state recently filed a petition opposing the acquisition.

In that, the broadcasters assert that GCI would control too much of the market, and would have an ability and incentive to harm competition in the television market and reduce service to the public.

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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