TDS to spend $60M to expand existing, out-of-territory fiber builds

TDS Telecom is looking to further its fiber expansion strategy within and outside its traditional wireline territory this year following the success of an initial build in Wisconsin from its acquisition of Sun Prairie Utilities, a regional fiber provider.

The telco is earmarking $60 million to fund these new fiber expansions inside and outside its wireline footprint throughout 2018.

By using three sets of contractors that were working around the clock, the Sun Prairie, Wisconsin  FTTH network was completed only 140 days after TDS acquired SPU fiber network. TDS is offering residential customers internet speeds up to 1 Gbps as well as its TDS TV service.

Vicki Villacrez, SVP of finance and CFO of TDS Telecom, told investors during its fourth-quarter earnings call that the telco will continue to look for opportunities to expand the fiber network outside its traditional territory.

RELATED: From AT&T to Zayo: Tracking wireline telecom earnings in Q4 2017

Villacrez TDS
Vicki Villacrez

“After a successful trial overbuild in Sun Prairie, Wisconsin, which is adjacent to our existing wireline footprint, we are moving forward with plans to bring fiber to additional markets that have attractive demographics and strong brand awareness,” Villacrez said during the earnings call, according to a Seeking Alpha earnings transcript.

Additionally, the service provider is going to leverage funding from the FCC’s Alternative-Connect America Cost Model (A-CAM) and state grants to accelerate build schedules to meet program requirements to bring more fiber into rural parts of its territory.

“A-CAM along with the state broadband program will enable us to drive fiber even deeper into our network, increasing this metric over time,” Villacrez said. “A-CAM will directly benefit about 21% of our wireline footprint.”

FTTH, copper bonding strengthens broadband

A key element of TDS Telecom’s broadband growth strategy is to leverage fiber and copper bonding to enhance broadband reach and speeds across its wireline and cable footprint.

By upgrading these networks, this allowed TDS Telecom to maintain broadband growth and increase IPTV connections and wireline residential revenues.

“By the end of 2017, we had deployed fiber to the home to 24% of ILEC service addresses,” Villacrez said. “To further strengthen our broadband offerings, we deployed copper bonding technology to an additional 26% of our ILEC service addresses, which enables broadband speeds of up to 50 Mbps.”

The broadband expansion and IPTV efforts helped drive up overall fourth-quarter wireline revenues.

“Residential revenues increased 1%, due primarily to continued growth within the broadband product mix as well as growth from IPTV connections,” Villacrez said. “Partially offsetting this growth is a decrease in ILEC residential voice connections, which ticked up to 6% in the quarter as we are seeing stronger cable competition in our copper markets.”

IPTV, broadband bundles reduce churn

As seen by other telcos such as CenturyLink, TDS Telecom bundles IPTV and high-speed broadband to drive higher penetration in these markets.

In 2017, IPTV connections grew 7% and[ the telco added 3,300 connections as the IPTV markets reach 30% penetration levels.

TDS said that 90% of its IPTV customers are on triple-play bundles and the churn on these bundles continues to remain very low.

“Our IPTV product called TDS TV is an important offering that leverages our high-speed network, improves ARPU and reduces churn,” Villacrez said. “We have launched TDS TV and offer up to 1 gig broadband speeds in 29 markets, enabling 210,000 service addresses, which is roughly 28% of our total footprint.”

From a broadband speed perspective, Villacrez noted that residential customers are purchasing higher-speed services in its fiber and copper markets.

“The residential customers continue to choose higher speeds of up to 1 gig in our fiber market and approximately 25% of all customers are now taking 50 megabit services or greater,” Villacrez said. “That's compared to 20% a year ago, driving a 4% increase in average residential revenue per connection.”

Here's a breakdown of TDS Telecom’s key metrics:

Wireline: TDS Telecom’s total wireline revenue was $175 million, up 1% year over year due to gains in residential and wholesale services. Residential revenue rose 1% to $79 million while wholesale rose 9% to $48 million. However, commercial revenue declined 7% to $48 million as a result of TDS Telecom transitioning away from serving customers on its on-net fiber and copper-based circuits.

Cable: Driven by gains in broadband subscribers and demand for higher speeds, TDS Telecom’s cable unit reported revenues rose 10% to $54 million. Within this group, residential revenue was $44 million, up 16%. However, commercial cable revenues declined 8% to $10 million. During the quarter, the company added 12,800 connections and 24,000 service addresses.

HMS: HMS continued to see struggles in the fourth quarter as overall revenue dipped 22% to $48 million. The company reported that equipment and services sales declined 5% and 37% to $27 million and $21 million, respectively.

Telephone & Data Systems financials: TDS Telecom’s parent company Telephone and Data Systems reported total operating revenues of $1.31 billion for the fourth quarter of 2017, up from $1.29 billion for the same period a year ago. Net income available to TDS common shareholders and related diluted earnings per share were $287 million and $2.54, respectively, for the fourth quarter of 2017.