Sizing up the indie telcos

Independent telcos addressing Tier 2 and Tier 3 markets are no longer the old reliables of telecom. The sector is undergoing a rapid and pervasive mutation via consolidation, which can make it difficult to trust one’s eye when assessing the true health of these firms.

“I would agree with that, particularly on a strict financial analysis,” said Bernie Arnason, who as CEO of Pivot Media has long followed the Independent telco sector.

A number of Independent telcos, ranging in size from large and still-growing (CenturyLink, Windstream Communications, Frontier Communications) to fairly small and regionally focused (Consolidated Communications, SureWest, NTELOS) reported first-quarter earnings this week. Here’s a sampling of those Q1 updates:

—Windstream, which, among other things, acquired business CLEC NuVox last year and is in the process of acquiring Iowa Telecom, saw residential line loses of 12,700, down about 6000 lines from the previous quarter and much lower than the 31,900 lost in the first quarter of 2009. The company continued strong broadband subscriber growth of 10% over the first quarter of 2009, signing up 36,000 broadband Internet customers during the most recent quarter. Windstream also gained more than 12,000 new TV customers in the quarter.

—CenturyLink, which has merged with Embarq and has proposed to do the same with Qwest Communications, lost 126,000 business and residential lines, about 20,000 fewer than it lost in the fourth quarter of 2009, though only 6000 fewer than the first quarter of 2009. The company also added 70,000 broadband Internet customers, seeing, like Windstream, 10% growth over the same period last year.

—Frontier Communications, which is attempting to acquire lines from Verizon, said it lost 26,600 residential and business customers during the first quarter of 2010, but it gained 8100 broadband Internet customers and 2800 satellite TV customers.

—Consolidated Communications, the Illinois telco that bought its way into new markets in Texas and Pennsylvania via the late 2007 acquisition of North Pittsburgh Systems and has been rumored to be an acquisition target, said its line loss rate has gradually dipped to 5.8% over the last year. The company also posted gains of 3800 subscribers for broadband Internet and 1800 for IPTV during the first quarter.

—SureWest Communications, which acquired Everest Broadband in 2008, reported that residential churn increased slightly from 1.4% to 1.6% but that the activity mostly occurred in portion of its markets where it doesn’t offer video service or can’t offer service bundles. In areas where SureWest has voice-over-IP (VoIP) service available, about 43% of traditional voice lines lost actually converted to the VoIP product.

In the area of line losses, the almost universal deceleration during the first quarter continues a trend that has been seen since last year. Still, Brian Washburn, research director for network services with Current Analysis described overall line loss across business and residential markets as “still pretty relentless” going into the end of last year. “There are a bunch of potential sub-factors in there if you're looking for signs of slowing erosion, such as whether we're finally seeing second lines to the home stabilize or whether wholesale access lines have finally stabilized,” he said. “Where these were broken out, we saw these sub-sectors really take it on the chin for years now.”