Q2 roundup: ILECs wade through legacy-to-IP migration

September 4, 2012

FierceTelecom

With the Q2 2012 earnings season coming to an end, FierceTelecom has taken the time to size up the performance of the top incumbent local exchange carriers (ILECs).

As seen in previous quarters, ILECs are finding ways to offset ongoing wireline voice loss by emphasizing the sales of IP-based business and consumer services, including broadband data, video and Ethernet. They are also expanding their respective Fiber to the Tower (FTTT) footprints to provide wireless backhaul services to wireless operators.
AT&T (NYSE: T) and Verizon (NYSE: VZ) both continued to find success in their next-gen consumer U-verse and FiOS video and high speed broadband service sets. During the quarter, AT&T added 155,000 new U-verse TV subscribers and 553,000 U-verse broadband subscribers, helping to offset the 96,000 DSL subscribers it lost. Verizon added 134,000 broadband customers and 120,000 FiOS TV subscribers.

Finally, CenturyLink (NYSE: CTL) reported that it added 18,000 broadband Internet customers, ending the quarter with a total of 5.76 million subscribers. It also expanded the number of Prism TV subscribers by 11 percent.

The top three ILECs' business services units were also notable. While inevitable declines in legacy Frame Relay and ATM drove down AT&T's overall business revenues 1.5 percent to $9.1 billion, it saw strategic business service revenues, including Ethernet, VPNs, hosting, IP conferencing and application services rise 13.5 percent over the same period a year ago. Similarly, Verizon reported that legacy business service revenue declines drove down Global Enterprise revenues 3.4 percent year-over-year to $3.8 billion in the quarter. However, Verizon's strategic services sales increased 4.4 percent.
CenturyLink also benefited from next-gen business sales, reporting gains in both its Enterprise Markets Group (EMG) -- Network Services and Enterprise Markets Group (EMG) -- Data Hosting Services units. Enterprise Market Group (EMG). Driven by higher than anticipated strategic services growth in Ethernet and MPLS, overall EMG total revenues rose 2 percent over Q2 2011 to $648 million. Operating revenues for EMG -- Data Hosting, which consists mainly of Savvis' operations, rose 6.5 percent to $277 million due to strong managed hosting (including cloud) and colocation services sales.
Outside of the big three, the Tier 2 ILECs, including Windstream (Nasdaq: WIN), FairPoint (Nasdaq: FRP), and Hawaiian Telcom (Nasdaq: HCOM) all reported gains during the quarter.
Windstream (Nasdaq: WIN) reported that revenues and sales rose 50 percent, to $1.5 billion, up from $64.6 million in Q1 2012. Bolstered by its acquisition of PAETEC, Windstream's business service revenues rose 2 percent year-over-year, to $893 million.
Both FairPoint and Hawaiian Telcom showed progress with their respective business and broadband initiatives. FairPoint reported that Ethernet services contributed about $10.2 million of revenue in Q2 2012, up from $9 million in Q1 2012 and $2.6 million in Q2 2011. Broadband continued to be a hot seller for FairPoint as the ILEC reported that its subscriber base rose 5.1 percent sequentially.
Hawaiian Telcom reported that landline voice losses drove down revenue to $94.7 million, but it saw continued gains with its IPTV subscriber base, which now passes homes 50,149 homes. One of the interesting facts about the telco's IPTV service was that about 60 percent of its total video customers took a triple play bundle, while 86 percent have a double play bundle where the service is available. On the business services side, Hawaiian Telcom bolstered its prospects by signing a deal to acquire competitive business service provider Wavecom.
In the regional Tier 2 telco space, Consolidated Communications (Nasdaq: CNSL) completed its acquisition of SureWest Communications and reported revenues rose 0.4 percent to $93 million.
Please take a look at the Q1 2012 metrics in the chart below. You can also look at our report of all of the service providers here in Q2 2012, and don't forget to look at our reports from Q1 2012, our reports from fourth quarter 2011, third quarter 2011, and second quarter 2011.

Q2 2012 Roundup--Top ILECs
Carrier	Revenue	Access Lines Q2	Access Lines Q1	Broadband Adds	Total Wireline Broadband	Video Adds	M&A
AT&T	$31.6B	36.8M	37.8M	553,000 U-verse, but lost 96,000 DSL	16.1M	155,000 U-verse TV	Sold stake in Yellow Pages to Cerberus
Verizon	$28.6B	23.3M	23.7M	134,000 net new FiOS	8.8M	120,000 new FiOS TV	N/A
CenturyLink	$4.61B	narrowed landline losses to 6.1%	14.4M	18,000	5.76M	Increased video subs by 11%	Integrating Qwest, Embarq, Savvis assets
Frontier	$1.26B	5.07M	5.16M	5,400	1.78M	13,300 satellite TV; lost 7,000 FiOS video subs	Completed integration of Verizon assets
Windstream	$1.5B	3.12M	3.15M		1.49M	Declined to 1.2M subs	completed PAETEC acquisition
FairPoint	$243.5M	995, 297	1.01M	2,302	318,510	Not reported	N/A
Cincinnati Bell	$368M	598,500	608,600	4,000 Fioptics HS Internet	257,200	4,000 Fioptics entertainment	Filed papers for Cyrus One IPO
TDS Telecom	$1.3B (TDS Parent)	360,100	363,500	900	220,400	700 IPTV subs	Acquired Vital Support Systems
Hawaiian Telcom	$94M	402,735	408,883	2,779	86,021	Total of 6,354 subs	Acquired Wavecom Solutions
Consolidated Communications	$93M	225,025	226,167	5,275	113,581	4,616 IPTV	Completed SureWest acquisition
Lumos Networks	$50.8M	147,202	150,641 (RLEC & competitive connections)	1,384	35,974	173	N/A
HickoryTech	$43.8M	43,973	49,628	274	19,364	Lost 384 subs	Acquired IdeaOne
Shenandoah	$3.3M	22,670	22,838	305 DSL	12,505	Total of 89,536 cable video subs	N/A