GCI calls 3Q mixed as net income declines from 2011

Molly DischnerThe Associated Press

Third quarter results were mixed for General Communications Inc.

Third quarter earnings released Nov. 7 show total revenues up for the Anchorage-based telecom, but net income down year-over-year.

Total revenues were $178.5 million, up slightly compared to the third quarter of 2011, when they were $177.7 million. And it was also up sequentially from second-quarter revenue of $176.1 million.

But the third quarter net income for 2012 was $3.7 million, down from $7.2 million in the third quarter of 2011.

Chief Financial Officer John Lowber said a number of factors were at play in the company's performance, including many of the same challenges that other telecommunications companies face. The company is aided by its TERRA expansions throughout rural Alaska, he said, and by a relatively strong economy in the state.

The company has also undertaken a number of efforts to strengthen its position in healthy areas. GCI subsidiary Denali Media Holdings also announced Nov. 9 that it will purchase three broadcast stations, pending Federal Communications Commission, or FCC, approval.

Denali will purchase KTVA-TV in Anchorage, a CBS affiliate, and KATH-TV in Juneau and KSCT-TV in Sitka, both NBC affiliates. Alaska Broadcasting Company, Inc./Media News Group, of Denver Colorado, owns KTVA, while Juneau's North Star Broadcasting owns the two Southeast stations.

Final approval of the transaction is expected in early 2013.

One of the financial challenges was the decrease in subscribers due, in part, to tighter federal regulations regarding participation in the Lifeline program. There was also some growth in non-lifeline wireless.

GCI is also feeling the same trends as others in the industry, primarily that voice is down, Lowber said.

"Data was the only category that saw an increase in revenues year to year," Lowber said.

Consumer data revenues increased 18.2 percent compared to 2011.

Roaming traffic also helped wireless revenues, a seasonal boost Alaska carriers receive from summer tourist traffic.

Lowber said that the number of local access lines, video subscribers and consumer wireless customers were all down compared to 2011.

But not every metric is down.

The company did see an uptick in cable modem revenue, with 1,400 more cable modems compared to the second quarter, and 6,800 more commercial and consumer cable modem customers than the third quarter of 2011. Average monthly revenue for cable modems also increased, up 11.9 percent for the third quarter of 2012 compared to the same period in 2011.

The commercial side is doing well overall.

"Commercial margins continue to increase," Lowber said.

Revenues for that sector increased 1.8 percent year-over-year, and 5.1 percent sequentially, despite decreased Universal Service Fund support. The company saw a decrease in USF support for voice and wireless of about $2.8 million compared to the third quarter of 2011.

Managed broadband was another high spot, Lowber said, thanks to the TERRA network expansions. Year-over-year, revenue was up 30.3 percent, and increased 4.5 percent compared to the second quarter.

Those TERRA expansions are continuing, which means the company could see some additional increases as more communities receive the service.

"The project is currently under budget, and is on schedule," Lowber said.

Mountaintop construction is scheduled to start in March, with phase three mountaintop construction getting under way next summer.

The project is still working through the permitting process for the Kotzebue arm of the expansion, with public meetings scheduled in Buckland and Kotzebue as part of the Bureau of Land Management's Environmental Assessment.

All is expected to be done and ready to go live in 2014.

Lowber said the company's future plans include further 3G expansion, an LTE rollout in Anchorage at the end of this year or in early 2013 and the pending Alaska Wireless Network transaction.

Alaska Communications and GCI will combine all of their wireless infrastructure assets, with GCI paying ACS $100 million to acquire a two-thirds interest in the new company. The two companies will maintain separate retail operations and sell products separately on the combined network.

Lowber said the move will eliminate duplication, and enable both companies to sell the fastest, most extensive service in a cost-effective way.

That effort is still pending FCC approval.

Lowber said the company would likely refinance senior debt to meet its obligations.

AWN related costs were $500,000 for the third quarter, and $2.6 million so far this year.

Overall, however, the company's capital expenditures are actually down slightly for the third quarter of 2012 compared to the third quarter of 2011, but up from the second quarter of this year. Total, GCI expects to spend about $150 million on capital expenditures in 2012.

GCI is also aided in its expansions by state and federal grants.

The company received a $6.3 million grant from the Regulatory Commission of Alaska, and a $2.3 million grant from the FCC 's mobility fund for 3G wireless expansion in rural Alaska.

Overall, Lowber said the company is maintaining the year-long guidance it has provided earlier, with total revenue expected to be between $690 million and $720 million, and earnings before interest, taxes, depreciation and amortization, or EBITDA, of between $230 and $240 million.

Those numbers do not include the costs associated with finalizing the Alaska Wireless Network.

Wireless and infrastructure efforts aren't the only arenas where the company is working on a stronger position.

The Denali Media Holdings purchase of three Alaska TV stations is meant to enhance the company's ability to add value to GCI's media enterprise.

"Our intention is to invest our resources and transform KTVA, KATH and KSCT into a news and entertainment leader unparalleled in Alaska," said GCI President Ron Duncan in a statement. "We look at these purchases as the first step toward providing a new statewide platform for news and information, as well as providing unique content and value for GCI's video subscribers."

John Tracy, former News Director at KTUU in Anchorage, will be the lead consultant for transitioning the news departments.

"Denali Media Holdings is committed to investing significant resources to provide Alaskans with a new choice for quality news programming and high-definition offerings," Tracy said. "I welcome the challenge of helping restore KTVA to the community leader it once was and building on KATH and KSCT's reputations."

Alaska Journal of Commerce