An Ignoble Experiment

FairPoint Communications failed to come to terms on a new labor agreement for about 1,700 workers represented by International Brotherhood of Electrical Workers (IBEW) and the Communications Workers of America (CWA).

Although the six-year contract expired on midnight Aug. 2, the company and the two labor unions said they will continue to talk to work out a new agreement.

The IBEW and CWA contracts mainly cover customer service employees, installation technicians and cable splicers working under agreements in the telco's northern New England territories in Maine, Vermont and New Hampshire.

Among issues that FairPoint and the unions could not work out are related to health insurance costs, pensions and subcontracting of work that's currently conducted by union members.

As both parties work out their issues, the company and the unions said they have agreed to proceed under the conditions of the now-expired agreement pending resolution of a new one.

"We will continue our efforts to reach a reasonable agreement that is fair to both parties," said Mike Spillane, business manager of Montpelier, Vt., Local 2326.

According to the IBEW, FairPoint wants to freeze union members' pensions, weaken seniority rights, increase outsourcing, reduce health care coverage and wages and eliminate retiree health care for active employees. On Friday, the telco rejected the unions' latest proposal.

FairPoint acknowledged in a prepared statement that the unions did not accept the company's own proposals on pension, health care and retirement benefits.

"To date, the unions have rejected company proposals on most of the core issues in these negotiations," said FairPoint spokeswoman Ange Amores Beaudry. "There has been little or no movement on pensions, retiree medical for active employees or subcontracting, issues which are key to reaching new contracts."

Beaudry added: "The unions have dug in on almost all of their current benefits under contracts from a bygone era," which she says "results in no movement toward an agreement which will be fair to our employees while enabling the company to be competitive and facilitate in providing modern telecommunication products and services successfully to our customers, communities and states."

For more:
- see the IBEW release
- and FairPoint's release

2. Hawaiian Telcom's Q2 consumer revenues rise to $36.3M on broadband, TV growth

By Sean Buckley

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Hawaiian Telcom's second-quarter story was once again dominated by its consumer segment, where the telco reported that revenue was $36.3 million, up 4.3 percent year-over-year due to revenue growth from its TV and high-speed Internet (HSI) services.

The service provider said that the ongoing buildout of its last mile fiber-based network has become the "catalyst" in driving video and HSI services, which is more than offsetting declines from legacy services.

"Our second quarter results closed the first half of 2014 on a strong note, highlighted by the highest number of Hawaiian Telcom TV subscriber additions since its launch a little over three years ago," said Eric K. Yeaman, Hawaiian Telcom's president and CEO, in the earnings release. "Hawaii's best entertainment experience can now reach 142,000 households on O?ahu and awareness for the service is steadily growing, giving us positive momentum and positioning us to further increase our video market share."

The service provider saw similar gains in the business segment, particularly in next-gen services such as Ethernet. Similar to its larger ILEC counterparts AT&T (NYSE: T) and Verizon (NYSE: VZ), business revenues declined slightly due to a decrease in equipment, managed services and legacy revenues.

Here's a breakdown of the telco's key metrics:

Broadband and Video: Consumer HSI revenue rose in the quarter to $2.6 million as the overall subscriber base rose to a total of about 91,400 customers, which was primarily driven by HSI pull-through rates from new video subscribers and standalone HSI subscriber additions. As of the end of June, about 54 percent of all of Hawaiian Telcom's video subscribers had a triple-play bundle and about 91 percent had double- or triple-play bundles. Per the industry-wide trend, revenue increases from video and HSI were partially offset by legacy revenue declines related to consumer access and long distance line losses of 8.4 percent and 7.7 percent, respectively.

Likewise, video service revenue grew 2.9 percent year-over-year to $5.5 million, driven by the addition of approximately 9,500 subscribers for a total of approximately 23,100 subscribers at the end of the second quarter. Hawaiian Telcom TV average revenue per user (ARPU) was up nearly 11.4 percent year-over-year and 2.6 percent when compared to the first quarter of 2014. During the quarter, the service provider enabled an additional 12,000 customers with IPTV, increasing the total number of households enabled to 142,000 with over 50 percent of those households capable of connecting directly to the company's fiber-based broadband technology. At the end of the second quarter, Hawaiian Telcom TV penetration of households enabled was approximately 16.3 percent.

Business segment: Business revenue was $42.1 million, down $0.5 million from the same period a year ago, primarily due to a $2.4 million year-over-year decrease in equipment and managed services revenue, mostly related to a $1.8 million sale of equipment to a large Hawaii-based private school in the second quarter of 2013. Also, a year-over-year decline in legacy business access and long distance revenues contributed to the business revenue decline. However, Hawaiian Telcom said these decreases were largely offset by $2.1 million of incremental net revenue added as a result of the SystemMetrics acquisition and a 4.6 percent year-over-year increase in business data revenue driven by higher demand for IP-based data services.

Wholesale segment: Wholesale revenue was $15.8 million, down $0.5 million year-over-year to $14.3 million. The telco attributes the decline to a number of its wireless carrier customers replacing their bandwidth legacy copper-based T-1 circuits with fiber-based, higher bandwidth Ethernet circuits. Likewise, switched carrier access revenue declined $0.2 million year-over-year to $1.5 million, which it also attributes to the overall decline in access lines and minutes of use and the impact of intercarrier compensation reform.

Overall second-quarter 2014 revenue was $96.8 million, up from $97 million in the second quarter of 2013. Next-gen video, HSI and $2.1 million of net incremental data center services revenue from SystemMetrics revenue was offset by a $2.4 million decrease in equipment and managed services revenue, related to lower customer premise equipment sales, and a 5.5 percent decline in access lines.

Shares of Hawaiian Telcom were $27.97, down 67 cents or 2.34 percent, in Monday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special report: Wireline telecom earnings in the second quarter of 2014

Read more about: FTTH, High Speed Internet Access
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3. America Movil gets green light to consolidate Brazil operations

By Sean Buckley

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América Móvil cleared a key hurdle in moving ahead with its plan to merge its three Brazil-based service providers--Claro, NET Servicos and Embratel--into a single company as Brazil regulator Anatel approved the plan.

Anatel's approval isn't without strings. The regulator said that mobile operator Claro, which will absorb NET and Embratel, will have to list its shares on the local stock exchange.

Igor Villas Boas, an Anatel official, said that Claro will have to open up to other investors under Brazilian telecom regulations that stipulate that concession holders or their controlling companies must have an open capital structure.

Embratel provides traditional wireline POTS service through a public concession, and according to local regulatory rules, wireline service providers have to be publicly traded companies.

In the second quarter, Brazil was a key contributor to América Móvil's total subscriber growth. During the quarter, the service provider's Brazil subscriber base rose 12.2 percent to 34.5 million fixed units at the end of June. Brazil makes up 48 percent of its wireline revenue generating units (RGUs), with pay TV and broadband accesses rising 14 percent and fixed-voice accesses growing 8.2 percent. One of the unique elements of the Brazil market is that 68.1 percent of the new customers are taking triple-play bundles.

The consolidation of these assets follows an earlier proposal to sell some of its assets in Mexico in order to "reduce its national market share in the Mexican telecommunications market under 50 percent."

Mexico hopes to attract about $19 billion to $232 billion in investments from new telecom firms entering the market, of which about $10 billion will be used to provide service through a publicly owned telecom network the government will begin leasing this year.

For more:
- TeleGeography has this article

Read more about: Brazil, Wireline Service Providers
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4. Bell Aliant adds 17,100 new FTTH subs in Q2

By Sean Buckley

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Special report: Wireline telecom earnings in the second quarter of 2014

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Bell Aliant's move to expand its FibreOP fiber to the home (FTTH) broadband offering continued to be a major driver in the telco's portfolio, helping to drive up Internet revenues 4.8 percent to $6.4 million.

The Canadian telco added 17,100 FibreOP subscribers during the quarter, bringing the total FibreOP Internet customers to about 217,100 at the end of June.

FibreOP Internet additions include a mix of existing Bell Aliant customers migrating from either DSL or fiber to the node (FTTN) networks to the new service. The telco said that these "migrations do not contribute to overall high-speed customer growth but increasingly contribute to improved customer retention and growth in overall average revenue per customer." In total, the service provider added 13,900 in the second quarter of 2014, up from 6,200 in the same quarter of 2013, ending the period with a total of 977,000 total high-speed Internet customers.

"For the first time in Bell Aliant's history, we actually had positive wireline RGU [revenue generating units] growth and the best net growth in Bell Aliant history," said Karen Sheriff, CEO of Bell Aliant, during the second-quarter earnings call, according to a Seeking Alpha transcript. "Customer growth in high-speed Internet and IPTV was driven by our FibreOP expansion and strong performance in our wholesale markets more than offset NAS [network access services] declines."

Sheriff said that the company is reaching maturity with FibreOP in some of its markets.

"As we have said before, we have a couple of more mature markets over 50 percent penetration and we have an increasing number of markets with over 40 percent penetration," Sheriff said.

In tandem with FibreOP data growth, IPTV revenue grew $11 million, or 38.3 percent, in the second quarter of 2014 compared to the same quarter in 2013, with total IPTV customers of 202,400, up 36.1 percent from a year earlier. Similar to its FibreOP broadband data offering, FibreOP TV customers grew by 14,200 in the second quarter to reach 185,600, a portion of which were migrations from Bell Aliant's FTTN TV service. Overall Bell Aliant added 12,600 new FibreOP TV subscribers in the second quarter of 2014, up from 11,500 in the same period a year ago.

Other data revenues increased by $3.7 million, or 3.9 percent, in the second quarter of 2014 compared to the same quarter in 2013, due to growth in IP data services enabled by Bell Aliant's expansion of its next-gen network technology.

Per the ongoing industry trend seen in all traditional wireline telcos, local service and long distance revenues declined $13.7 million (5.3 percent) and $11 million (13.9 percent), respectively, in the second quarter of 2014 compared to the same quarter in 2013, driven largely by a 5.3 percent decline in NAS revenues.

Overall net NAS declines improved 25.3 percent from the same quarter in 2013. Interestingly, Bell Aliant narrowed both residential and business net NAS declines during the quarter. Residential NAS declines of 20,000 in the second quarter of 2014 improved 6,700 from the same quarter in 2013, with improved performance in both fiber and non-fiber markets. Business net NAS declines of 4,900 in the second quarter of 2014 improved 1,800 from the same quarter a year earlier.

From an overall financial perspective, Bell Aliant reported net earnings of $66 million, up $5.5 million from the same quarter in 2013. Bell Aliant said the increase was driven by higher earnings in Bell Aliant GP, with lower finance and income tax expenses more than offsetting lower adjusted EBITDA and higher restructuring costs compared to the second quarter of 2013.

However, second-quarter operating revenues were $626 million, down $8.2 million, or 1.3 percent year-over-year as growth in Internet, TV, other data and wireless revenues was offset by declines in local, long distance and other revenues.

Shares of Bell Aliant were trading at $30.94, up 4 cents or 0.13 percent, in Monday morning trading on the Toronto stock exchange.

For more:
- see the earnings release
- and the earnings transcript (sub. req.)

5. Seattle sues defunct Gigabit Squared for over $50K in unpaid bills

By Sean Buckley

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