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ACS, GCI expect 2013 market entry for Verizon

Posted: August 15, 2011 - 8:00am  |  Updated: August 15, 2011 - 8:56am

Alaska-based telecoms don’t expect to be competing with Verizon Wireless until 2013 at the soonest.

In reporting their second quarter results, both Alaska Communications Systems Group Inc. and General Communications Inc. addressed the potential timing of Verizon’s entry to the Alaska market and each reached the same conclusion.

Verizon purchased a block of spectrum in August 2010 that will facilitate its eventual entry to Alaska with 4G LTE service, but without any other infrastructure in place its future competitors see 2013 as the soonest it can deploy.

“I don’t expect any significant impact until 2013 or 2014, and that seems a long way away in the planning horizon,” said Ron Duncan, CEO of GCI, in the company’s Aug. 4 earnings call.

According to the build-out requirements of its license, Verizon must begin offering service in Alaska by June 13, 2013.

ACS, which carries roaming traffic for Verizon in Alaska, wrote in its second quarter report that, “given our knowledge and experience of construction seasons in Alaska, we believe it is highly unlikely we will see any erosion in our roaming revenue stream until 2013 at the earliest, and given the ever increasing use of wireless data, we expect to see increases in roaming revenue in the near to medium term.”

ACS saw some of that roaming revenue increase in the second quarter, reporting a $3.4 million increase year-over-year and boosting overall wireless revenue by $1.7 million versus 2010 despite an overall loss of subscribers.

Verizon’s West Region spokesman Scott Charleston said the company remains “excited” to enter Alaska, but could not comment on the timing suggested by GCI or ACS.

“We’re working hard to build a network and are prepared to enter the Alaska market, but in terms of timing what can happen when, I’m not prepared to deliver any of that information,” said Verizon Wireless West Region spokesman Scott Charleston.

Duncan said Verizon’s lack of infrastructure in the state means it could be four to five years before the company has a complete network, which will also depend on the rate customers migrate to 4G LTE phones.

“That said, we recognize ultimately they’ll be a significant competitor,”

Duncan said, “although I see AT&T share more at risk because Verizon’s main claim to fame when they get to Alaska is going to be devices. We’ll still outpace them on coverage. We’ll continue to be the only ones with statewide coverage.

“People who want to buy the coverage buy from us today; people who want devices buy from AT&T because AT&T gets much better devices than we do.”

Duncan also saw a potential plus eventually if it bleeds revenue from ACS.

“In the long run there’s some upside to that given we don’t have any Verizon revenue to lose,” he said. “There’s probably more upside to their entry than downside from loss of subscribers because we’ll hold our own on subscribers.”

Two months after Verizon confirmed it was entering Alaska, ACS announced an additional $20 million in capital expenditures to build its own 4G LTE network in the state.

GCI plan to turn on its higher-speed network this month in Anchorage. GCI is not moving to 4G LTE near-term, rather it is upgrading to what is known as HSPA+. HSPA+, which stands for high-speed packet access, offers faster speeds than 3G but does not require the full fiber-optic build-out needed for 4G LTE.

ACS has stated that its 4G LTE network will be 10 times as fast as current 3G networks and twice as fast as HSPA+.

ACS and GCI each posted a net loss for the second quarter after both companies incurred significant expenses for retiring and reissuing long-term debt. GCI retired $320 million worth of notes due in 2014, recording an expense of $9.1 million and posting a net loss for the quarter of $2 million.

ACS recorded a $13.4 million expense related to refinancing of $120 million in notes due in 2018, and posted a net loss for the quarter of $3.6 million.

GCI Chief Financial Officer John Lowber cited the troop deployment to Afghanistan of more than 4,000 soldiers from Fort Wainwright in Fairbanks as the major factor in flat revenue in the second quarter. GCI attributed the loss of 1,100 wired access lines, 1,000 basic video subscribers and more than 300 wireless subscribers to the deployment.

Overall gross revenues for GCI increased by $5.8 million in the second quarter compared to the second quarter of 2010, but higher overhead expenses cut into operating revenues by about $3 million.

GCI still expects its TERRA-Southwest project to be complete this year, which will bring broadband access to about 30,000 residents in Southwest Alaska. The project is being funded with a $44 million grant from the 2009 stimulus bill and a $44 million low-interest federal loan.

Despite the flat second quarter and some additional capital expenditures, GCI affirmed its annual guidance that anticipated gross revenues of $685 million to $700 million. Gross revenue through two quarters is $332.9 million.

“We have to acknowledge we’re running a bit behind plans so far this year, but we’ve also accomplished a great deal that will further strengthen us in the market and ultimately be reflected in our financial performance,” Lowber said.

ACS grew its overall revenue by about $500,000 year-over-year to $84.9 million in the quarter; gross revenue is up about $5 million from 2010 year-to-date.

ACS, which lost its second-place spot in market share to GCI last year, continues to grow its operating income. ACS posted a $4.2 million increase year-over-year in second quarter operating income, and is up nearly $9 million year-to-date.

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