ITC^Deltacom reports shrinkage

ITC^Deltacom reported shrinking revenue and growing losses for the third quarter of 2006, largely the result of a drop in long-distance service revenue and the company’s exit from two businesses late last year. Meanwhile, its earnings before interest, taxes, depreciation and amortization was up 4% from a year earlier to nearly $17.5 million.

The Southwestern competitive local exchange carrier reported a net loss of $11.9 million (or $0.74 per share) for the third quarter, an increase of 43% from a year ago. Operating revenue for the third quarter was $124 million, flat sequentially and down 3% from a year earlier. Part of the revenue decline was a $4.4-million drop in long-distance service revenue, but part of it resulted from discontinued businesses. In late 2005, ITC sold its e^deltacom managed services businesses and exited the residential market. Excluding the effect of those two moves, ITC said, its operating revenue is down only 0.2% from a year earlier.

Revenue from communications services was flat sequentially and down nearly 6% from a year earlier to $96.5 million. ITC attributed its 12% drop in total long-distance minutes to “competitive pressures and technological changes in service delivery,” and also blamed revenue erosion there on the company’s having cut its average long-distance rates 3% from a year earlier. The company is also offering flat-rate local and long-distance bundles, which increases the number of non-billable long-distance minutes, it said. At the end of the third quarter, 11% of ITC’s long-distance minutes came from customers paying for a flat-rate bundle.

ITC’s wholesale service revenue was flat sequentially and down 1% from a year earlier to nearly $21 million in the quarter. Wholesale revenue from directory assistance and operator services was up from a year earlier, but revenue from local interconnection was down, and broadband transport (the biggest source of wholesale revenue) was flat from a year earlier.

Revenue from equipment sales and related services was flat sequentially but up 38% from a year earlier to $6.8 million.

ITC added 4,100 net active local lines by adding a total of 10,300 facilities-based lines and “groom[ing] from [its] network” 6,200 resold lines. ITC now has 386,414 retail lines in service, up 5% from a year earlier, and 53,222 wholesale lines, down 13% from a year earlier.

In October, ITC renegotiated nearly $7.1 million in debt due at the end of that month. The company agreed to pay $2.27 million of the principal last month, another $2.4 million (plus interest) in 36 monthly payments starting this month, and monthly interest on another $2.4 million due October 1, 2009. As part of the renegotiation, the interest on that debt was increased from 8.75% to 10%. ITC’s total debt as of the end of September was more than $311 million, down less than 2% from the end of last year.

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