Thursday, August 04, 2016

Economic Outlook for the Quarter

The numbers are in for most service providers. Here are some highlights.

For Windstream, a RLEC, CLEC, fiber and cloud provider that recently raised minimum sales order from $300 to $1200 to the channel.

  • "Windstream's management is making necessary investments in its business to meet consumer and enterprise demand for additional bandwidth, according to the analysts at Jefferies." [source
  • Windstream will have to spend double the CAPEX in order to compete against consumer cable broadband in its market. 45% of their market is one of the Big Boys (as opposed to a mom-and-pop cableco). 
  • Building out fiber to the enterprise is trading CAPEX for margin and control (over using Type II circuits from ILECs or IXCs).
  • Windstream's consumer and small business ILEC service revenues were $397 million in the first quarter, a decrease of 1 percent from the same period a year ago. Driven by growth in high-speed internet bundle revenue, consumer service revenues were $312 million, an increase of approximately $1 million from the fourth quarter.
  • However, Windstream lost 40,000 broadband subscribers to end the quarter with a total of 1.09 million subscribers.

The big warning: "the Jefferies analysts sounded the alarm on Windstream's legacy business, which they said accounts for roughly 40 percent of its revenue. "As such, Service revenue is expected to decline ~2% in 2016, and while we could see some modest improvements going forward, we expect revenue declines to persist for some time," the analysts wrote. "Importantly, like its peers, the mix shift in revenue pressures margins and free cash flow and we anticipate margins to decline further, despite management confidence in margin stabilization."

It isn’t just WIND. Most of the ILECs have the same problems – cable, CAPEX, declining revenue, while face declining revenues in legacy business -- in small business ILEC/CLEC, carrier services and regulatory revenue for the foreseeable future.

CenturyLink revenues were flat at $4.4 billion in quarterly revenue.

For Broadsoft, "On the BroadCloud expansion front, we ended the quarter with more than 290,000 BroadCloud subs, which is up from 200,000 subscribers we announced at the end of last year's Q2." It was mainly European growth.

SaaS revenue was $12.8 million as compared to $12 million last quarter and $8.5 million in last year's Q2.

The focus is on Project Tempo, UC-One and BroadSoft Contact Center.

Rogers Communications in Canada selected BroadSoft as the underlying engine for Unison, a new mobile solution for our businesses. The service is designed to provide large enterprise-wide communication features in a full mobile environment that even SMB customers can access.

For RingCentral, "RingCentral office is now in almost $300 million annual recurrence revenue business, growing over 40% year-over-year, and representing over 95% of our net new business in Q2."

Integration especially with Microsoft Office 365 was noted.

For 8x8, total revenue in 1Q2017 "grew 25% year-over-year to $60 million. Service revenue of $55.3 million also grew 25% year-over-year, both on an organic and inorganic basis."

Service revenue from mid-market and enterprise customers grew 44% year-over-year and now accounts for 52% of our total service revenue.

Channel sales teams increasing 62% year-over-year, accounting for 58% of total monthly recurring revenue booked in the quarter.

Vonage numbers were hard to decipher due to Nexmo acquisition. No organic quarters to look at there.

AT&T 2Q16 consolidated revenues of $40.5 billion, up more than 22%d (includes the acquisition of DIRECTV).

For Verizon, "Total operating revenues in second-quarter 2016 were $30.5 billion, a 5.3 percent decrease compared with second-quarter 2015. Excluding second-quarter 2015 revenues from divested local landline businesses and second-quarter 2016 revenues from AOL, which was not part of Verizon a year ago, total operating revenues on a comparable basis (non-GAAP) would have declined 3.5 percent year over year. AOL delivered strong revenue growth in second-quarter 2016."

"New revenue streams from IoT for VZW continue to grow, with revenues of approximately $205 million in second-quarter 2016, a year-over-year increase of about 25 percent." Almost $1B in revenue!

It is all about business services in the upper markets. Channel is driving sales. Another factor is integration and collaboration functions.

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