Bad economy may be slowing RLEC line loss

Many rural carriers reported positive trends in access line loss in the first quarter, suggesting some stabilization in what has been a persistent problem for telecom carriers. And it’s possible the bad economy may be helping to drive the improvement.

Embarq (NYSE: EQ), Frontier Communications (NYSE: FTR) and Iowa Telecom (NYSE: IWA) all reported seeing access line loss trends in the first quarter that were in some respects better than in any quarter last year, and they weren’t the only ones citing good news in line counts lately.

“A long line of RLECs…report[ed] improving access line trends over the course of the last couple quarters,” Stifel Nicolaus analyst Bill King said on Frontier Communications’ earnings call this week.

Iowa Telecom reported its lowest quarterly loss of incumbent access lines (3,600) since early 2007, when cable competitors launched service in many of its markets.

Frontier Communications reported its lowest net line loss since the fourth quarter of 2007 (though normalizing that quarter for one-time events, you’d have to go back two more quarters to find a better one). The 37,500 lines it lost in the first quarter were an 11% improvement sequentially and its third straight quarter of access line loss decline. Line loss in its Rochester, New York market was the lowest in over three years.

Some have suggested that the bad economy may actually be aiding access line trends because fewer people are changing addresses, which is a typical occasion for customer churn.

“One of the big issues that’s worked in our favor nationwide is that less people are moving,” Maggie Wilderotter, Frontier’s chief executive officer, said on the company’s first-quarter earnings call this week. “Less houses are being sold in many of the markets. That stabilization also helps from an access-line perspective.”

Embarq reported first-quarter consumer line loss that was flat year-over-year, the first time the company has been able to make that claim since 2007. And it said access line loss in March and April of this year was down from year-earlier levels.

Part of the reason for the improvement, said Harry Campbell, president of Embarq’s consumer markets group, is a reduced customer defection to cable competitors thanks to Embarq’s overall focus on improved customer satisfaction and retention. But it may also be due in part to the fact that the bad economy took its toll earlier rather than later, he said.

“The wins really are in the disconnects,” Campbell said on the company’s earnings call this week. “We’re seeing cable losses frankly soften. We’d seen wireless disconnects start to pick up some -- those have kind of stabilized. We’ve done a lot of base management efforts in addition to that to try to make sure our customers are on the right plans and are staying with us. Our satisfaction measures are going up. When you accumulate these all together, plus the fact that some of our markets took a pretty heavy hit early on with regard to the economy, that’s what’s happening.” 

However, that improvement in Embarq’s consumer business was overshadowed by year-over-year increases in line loss among Embarq’s business customers -- also due to the overall economy -- which drove Embarq’s total line loss higher in the first quarter than it was a year earlier.

Not all RLECs were bragging about access line trends in the first quarter. CenturyTel reported a 6.7% year-over-year drop in first-quarter access lines after reporting 6.4% for calendar year 2008. Windstream, which historically has had less access line loss than many of its peers, lost 1.5% of its access lines in the first quarter, up from 1.3% a year earlier. Its first-quarter net access line loss was down sequentially, from 48,500 to 44,400, but up 6% from a year earlier and up 38% from 2007’s first quarter.

A new report from the Centers for Disease Control this week suggested that the dampening economy accelerated wireless substitution of wireline voice lines late last year. The number of US homes with no landline phone increased 3% in the back half of the year to make up 20% of all households, the CDC said.

But while Americans may be ditching their home phones, they may be less ambivalent about their high-speed Internet connections. North American broadband growth surpassed expectations in the first quarter, perhaps in part due to an increased interest in home-based entertainment among consumers made frugal by the bad economy.