Harvesting of Legacy Revenues Still Matters
Relying on “legacy” services is not a strategy for revenue growth at most tier-one telcos, nor is it a “safe” strategy for the longer term.
On the other hand, incremental gains in the legacy business can be a huge contributor to maintaining revenue and profit margins as growth initiatives are launched. In other words, in the near term, it still matters to harvest as much legacy revenue as possible.
And that is what Frontier Communications hopes to achieve over the next quarter and year as it looks to grow business revenues in the Texas, California and Florida assets Frontier purchased from Verizon.
One strategy is to leverage the installed distribution and access fiber to boost business revenues in those areas.
And getting more leverage out of legacy assets is a big concern at CenturyLink as well. Note the language in CenturyLink’s second quarter earnings call.
“Second quarter operating revenue on a consolidated basis was approximately $4.1 billion, a seven-percent decrease from second quarter 2016 operating revenues.”
“Core revenue, defined as strategic revenue plus legacy revenue, was $3.66 billion for the second quarter, a decrease of 7.9 percent from the year ago period.”
“Enterprise segment generated $2.22 billion in operating revenues, which decreased nine percent from the same period a year ago. Second quarter Enterprise strategic revenues were $985 million, a decrease of 8.9% compared to the second quarter 2016.”
“Legacy revenues for the segment declined 10.1 percent for second quarter 2016.”
The consumer segment decreased 6.2 percent, year over year. Consumer strategic revenues declined four percent year-over-year.
“We do anticipate coming in slightly below our full-year 2017 revenue and adjusted diluted EPS guidance, primarily driven by higher legacy revenue decline and lower consumer broadband revenue growth than anticipated,” CenturyLink said.
Many would doubt it is possible for CenturyLink or Frontier Communications to reverse those trends in the legacy business.
Slow, steady decline is how Moody’s recently described the outlook for U.S. telcos Windstream, CenturyLink and Frontier Communications. But Moody’s also said that higher capital investment could help those firms avoid that fate. CenturyLink has boosted its capex to raise internet access speeds.
One might suggest another possibility: in addition to higher capex, it might be possible to boost internet access speeds at lower cost than previously was thinkable, using newer access technologies, ranging from G.fast for augmenting digital subscriber line to fiber to the home to fixed wireless.
Harvesting matters, in part, because it buys time for a transition to new revenue sources and business models.