Tuesday, September 08, 2015

The Saga of Being an RLEC

Telergee is a research firm that benchmarks the 800 small rural telcos (RLECs) in the US. The 2015 Telergee Benchmarking Study is based on 197 responses - about 25% which is a good response rate.

The top note from the study, "Declining margins are an ongoing issue for small rural telcos... The average small telco saw margins drop 1.7% between 2013 and 2014, despite a 2.1% increase in average revenues."

However, they are investing -- probably because they HAVE to. There are 2 transitions taking place for RLECs - the TDM to IP transition that every voice provider is subject to and the transition from voice to broadband as the benchmark for USF funds. The investment is in fiber to the home and fiber to the tower, as well as softswitch for Hosted VoIP.

"Small telco margins are based on a mix of their traditional wireline voice business and newer non-regulated businesses such as video and wireless. ... Non-regulated margins were 4.2% — an increase of 2.1% over 2013. But regulated margins were just .8% — a decrease of 7.5% from 2013."

"A typical small rural telco gets less than half of its revenue from end users, according to financial data collected by the Telergee Alliance – a group of accounting firms that specialize in rural telecom. On average, small rural telcos get about 45.2% of revenues from end users, with the remainder coming from state and federal Universal Service programs (25.7%), interexchange carriers (18.4%) and other sources (7.2%)." [telecompetitor]

"Telergee tracks results for four of the most common such services that telcos have been offering – Internet, video, wireless and competitive local exchange carrier (CLEC)." It makes me wonder how many RLECs are also the cableco and the cellco for their area. No data that I could find on that, although 25% of respondents had some wireless (cellular) business. The cell business was usually resale, often USF subsidized, and in most cases operates at breakeven.

On TV - the study emphasizes what I have advised in the past: "Video is another commonly offered service for rural telcos, with 130 out of 197 in Telergee’s study offering either IPTV or traditional cable TV. But the economics of video service are considerably less positive than for broadband Internet. Video customer growth was virtually flat between 2013 and 2014, according to Telergee. And although video revenues were up 5.6%, that was largely because companies had to increase prices to help cover increased content costs, Skidmore said. Margins were slim, with the median company’s video business actually operating at a loss."

Interesting look at the financial side of the RLEC, rural telco. The largest of these are Windstream, Frontier and Fairpoint. Most take CAF money for broadband expansion. Most face an uphill battle for revenue that was showcased by WVT/Alteva recently.

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