Cincinnati Bell continues to make progress with its Fioptics FTTH build, passing an additional 23,000 new addresses with the service in the first half of 2017.
As a result, the service provider said it is on track to pass 35,000 new addresses in the first half of this year with Fioptics, extending services to over 70% of greater Cincinnati.
“Our Fioptics suite of products are now available to 557,000 homes and businesses and cover approximately 70% of the greater Cincinnati market,” said Leigh Fox, CEO of Cincinnati Bell, during the earnings call, according to a Seeking Alpha transcript. “This represents a 16% increase in addresses year over year and makes our fiber network one of the most densely and competitively advantaged fiber networks in the country.”
RELATED: From AT&T to Zayo: Tracking wireline telecom earnings in Q2 2017
Fioptics internet subscribers rose 22% year over year and now total 214,000. Fioptics Internet penetration rate reached 38% this quarter, up from the same quarter last year, in spite of a 5% increase in ARPU.
The service provider also increased its overall internet base by 4% year over year, ending the second quarter with 307,000 internet subscribers.
Andy Kaiser, CFO of Cincinnati Bell, said that throughout the rest of 2017 the service provider will focus a large portion of its capital spending on “expanding our fiber network as we need fiber to compete effectively.”
In particular, Kaiser says that the service provider sees an opportunity to convert more of its existing copper-based DSL customers to FTTH. Today, 15% of Fioptics customers are on a fiber-to-the-node platform where the connection into the home is on copper.
“Over time you'll see us go and over build to the premises,” Kaiser said. “You just slowly migrate things and continue to invest and increasing the density of fiber in your market.”
Weighing installation, maintenance costs
As Cincinnati Bell scales its FTTH network, the service provider is always looking at how to balance network build costs and its effect on thwarting customers churning to cable.
Unsurprisingly, Cincinnati Bell sees less broadband churn areas where it currently offers FTTH services, but lightning storms can affect network electronics.
“On the cost side and moving down to the network costs, yes, we see improvement,” Kaiser said. “We see improvements with repair rates. We see improvements with churn. We see improvements during storm except lightning storms.”
At the same time, the service provider is seeing FTTH installation costs rise as it deepens penetration throughout Cincinnati.
“On the cost to install and build, things have been steadily creeping up,” Fox said. “Like we said in the past, we expected the number probably was 20-plus percent-ish. We expected to be 20-plus percent-ish higher than today than we actually are from a cost standpoint.”
Jennifer Fritzsche, senior analyst for Wells Fargo, said in a research note that as Cincinnati Bell gets over the hump of the FTTH build, the telco will enhance free cash flow (FCF).
“Capital intensity continues to decline as CBB reaches greater fiber penetration in its markets, leading to improving FCF generation of ~$19MM in Q2,” Fritzsche said. “We believe the FCF generation story will get more interesting in FY2018 and beyond as the bulk of its Fioptics expansion efforts are behind it.”
Eying G.fast, fixed wireless
While FTTH is the main priority for future Fioptics growth, the service provider can’t realistically reach every customer in its market with fiber.
In order to get to harder-to-reach premises not covered today by FTTH, the service provider is looking at other technologies, including G.fast and some form of fixed wireless.
“We are in fact evaluating fixed wireless trials as well as fiber to the premises for apartment buildings and including G.fast to up to speeds in tandem with bringing fiber into those areas,” said Tom Simpson, COO of Cincinnati Bell. “As far as fiber penetration, we continue to look at that on where it makes sense, but we believe that we can heavily cover our market servicing areas and really agile.”
Leveraging G.fast would make sense, particularly in multidwelling unit (MDU) environments. Being an ILEC, Cincinnati would be able to leverage the existing copper or even HFC it had already installed in Cincinnati’s MDUs to deliver higher speed services by bringing a fiber connection into a building basement.
However, the service provider did not provide any specific details on when it would conduct G.fast and fixed wireless technology trials.
Here’s a breakdown of Cincinnati Bell’s key metrics:
Entertainment and Communications: Cincinnati Bell reported second-quarter Entertainment and Communications revenue of $201 million, up $9 million year-over-year, including $5 million of revenue from a one-time fiber build project completed in the second quarter.
Similar to earlier quarters, Fioptics was a key contributor with $77 million in revenue, up 24% year over year. Cincinnati Bell reported gains in Fioptics internet and video subscribers. Fioptics internet subscribers totaled 214,100, up 22% year over year, while ending the quarter with a total of 142,800 Fioptics video subscribers, up 13% year over year. The service provider also saw gains in the strategic business and carrier revenue of $57 million, up 16% year over year.
“Entertainment, communications revenue increased by 5% compared to a year ago, as strong demand for our fiber-based products drove an 80% year-over-year increase in strategic revenue, which continued to outpace legacy copper declines,” Fox said.
IT Services and Hardware Segment: IT Services and Hardware revenue was $96 million, up $10 million sequentially and down $14 million year over year. The service provider reported strategic revenue of $42 million, down $2 million sequentially and down $7 million year over year, reflecting what it said was increased insourcing of IT services in the company's market
Cincinnati Bell also saw gains in Telecom and IT hardware as well as cloud services. Telecom and IT hardware sales were $45 million, up $9 million sequentially, while cloud services revenue rose 7% year over year to $12 million.
Operating income of $1 million and Adjusted EBITDA of $7 million both decreased compared to the prior year due to a decline in revenue and increased costs associated with the expansion of the company's national footprint.
Financials: Consolidated revenue for the second quarter of 2017 was $294 million, down 2% from the prior year as strategic revenue growth was offset by lower Telecom and IT hardware sales and legacy declines.
Based on its year-to-date results and current outlook for the year, Cincinnati Bell reaffirmed its previous 2017 financial guidance of $1.2 billion in revenue and adjusted EBITDA of $295 million.