Raising wholesale LD prices costs Broadwing revenue

Broadwing reported a sequential dip in revenue for the third quarter resulting from the carrier’s recent decision to raise wholesale long-distance prices, but executives were unapologetic, confident in the long-term benefits of higher prices in the sector.

“We will not maintain revenue at the expense of margins,” Broadwing chief executive David Huber said during the company’s third-quarter conference call today.

Broadwing reported $218.7 million in revenue for the third quarter, a 34% increase from a year earlier (9% excluding the effect of the Focal Communications acquisition) but a 2% decline sequentially. The carrier also reported a net loss of $30.5 million, or $0.41 per share, a 17% improvement from a year earlier and a 20% improvement sequentially.

Voice services revenue (which includes both local and long-distance services), though up 60% from a year earlier, dropped 5% sequentially to $100.5 million. The company attributed the sequential decline largely to a decrease in wholesale long-distance traffic resulting from Broadwing’s price increases. Wholesale traffic began to decline late in the second quarter, the company said, and the third quarter was the first full quarter to feel its impact.

“We don’t expect wholesale LD traffic volumes to return to the level we had earlier this year,” Lynn Anderson, Broadwing’s chief financial officer, said. “We also don’t expect significant churn as a result of the price increases we implemented.”

Anderson called the company’s increase in wholesale LD prices part of a “general trend” among carriers, citing the recent remarks of Level 3 Communications executives that price pressure in the sector was easing.

Huber called the pricing trend a “healthy” one for the company and its peers over the long term. “More stable pricing should help all the players,” he said.

When asked to, Broadwing executives declined to quantify the potential impact to its wholesale LD business of regional Bell carrier customers using their own acquired interexchange carrier networks for backbone transport instead of Broadwing’s.

“At the end of the day, we see this consolidation as an opportunity more than anything,” Anderson said. “Combining all those [carriers] together, we’re going to be positioned as one of the top alternatives for people to come to.”

During the third quarter, Broadwing’s data and Internet revenue grew 12% from a year earlier, while broadband revenue grew 21%.