The state of voice revenues at Consolidated Communications, a firm offering triple play services largely in rural markets, illustrates the revenue and strategy challenges smaller fixed network service providers face.
Consolidated Communications organic local calling revenue decreased $4.8 million during 2013 compared to 2012 primarily due to a four percent decline in local access lines.
Overall, local calling services revenue increased $13 million during 2013 compared to 2012, “primarily due to the acquisition of SureWest Communications,” Consolidated Communications says.
Likewise, Consolidated Communications network access services revenue increased $13.8 million during 2013 compared to 2012 primarily as a result of the acquisition of SureWest, which accounted for a $21.2 million annual increase in network access services revenue.
Excluding the additional six months of revenue for SureWest, Consolidated Communications network access services decreased $7.4 million during 2013 compared to 2012.
Consolidated Communications video, data and Internet revenue increased $93.3 million during 2013 compared to 2012, primarily as a result of the acquisition of SureWest, which accounted for $85.2 million of the annual increase.
Consolidated Communications organic growth was about three percent for data services while video revenue grew about four percent, on an organic basis.
Broadband revenues overall--video, data and Internet access--represented 45 percent of revenues in 2013 compared to 37 percent in 2012.
Abandonment of voice is one challenge: consumers are abandoning use of fixed network voice, in favor of mobile calling. At the same time, cable companies have become the clear alternate suppliers of fixed network calling.
In 2012, for example, there were about 305 million mobile accounts in service, compared to 96 million switched access lines and 42 million VoIP lines in service, for at total of 138 million fixed network voice lines according to the Federal Communications Commission.
About 41 percent of the voice lines were supplied by competitors, meaning that, overall, incumbent telcos retain about 60 percent market share. Competitors have taken 23 percent of residential lines and 18 percent of business lines.
Overall, incumbents serve about 58 percent of business lines, nationwide.
About 99 percent of the incumbent VoIP lines are sold as part of a service bundle. That raises a key question: are consumers buying fixed VoIP lines only because the cost of doing so, as part of a triple-play package, provides other advantages, namely lower total communications and video costs?
In other words, how “soft” is demand for residential voice lines? If consumers could buy packages without voice lines, and save even more money, would they do so?
The current structure of retail offers is such that consumers often can save more money buying voice service as part of a triple-play bundle than they would pay for a dual-play package featuring Internet access and video services.
In such cases, voice service just comes with the package, even if those consumers might otherwise not have purchased a voice line.
Since 2006, total lines purchased have fallen from 172 million to 138 million in 2012. That means telcos face two separate issues. The addressable market is shrinking, and competitors are taking an increasing share of the market.
Diversification into other services--Internet access and video entertainment, plus out of region operations--is now a universal strategy.
But unable to grow connections in region, telcos also are growing by acquisition. That is true for Consolidated Communications, no less than for other firms.
Had it not purchased SureWest Communications in 2012, Consolidated Communications voice revenue would have contracted.
But there is another way of looking at the problem.
For the year ended December 31, 2011, SureWest Communications reported $248.1 million in total operating revenues. But SureWest itself has grown largely by acquisition, buying first WINfirst and then Everest Broadband.
The Everest Broadband deal added 200,000 revenue generating units (each RGU is an individual component in a triple play offer) and 117,000 new voice access customers for SureWest.
The deal also more than doubled SureWest’s triple-play installed base of customers.
But there are more revealing numbers. As of December 31, 2013, the Consolidated Communications operation in the former SureWest territory in California had 42,403 local access lines.
In 2004, that same SureWest Communications operation had 132,000 voice customers.
And that, in a nutshell, illustrates the problem fixed network service providers--especially telcos--now face. The legacy SureWest operation has lost nearly 70 percent of its fixed voice lines.
To be sure, Internet access, business services and video have compensated for those losses.
Change, in other words, if a fundamental requirement, not an “option.”
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