Hawaiian Telcom loses phone lines, gains DSL business
HAWAIIAN TELCOM'S revenue from high-speed Internet customers grew by 52 percent, or $8.8 million, during the first nine months of this year compared with the same period last year.
But the company saw its wired phone business erode as an apparent result of customers switching to wireless and Internet telephones and from dial-up Internet service to high-speed connections.
These facts, revealed in Hawaiian Telcom's inaugural earnings report released yesterday, illustrate what company executives have said about a company that they have dubbed "the world's oldest start-up": Hawaiian Telcom is no longer a monopoly utility, and its growth depends on victory in highly competitive businesses such as high-speed Internet and wireless phones and data services.
Although Hawaiian Telcom's main assets consist of Hawaii's incumbent wired phone line system, the company actually was created earlier this year by the Carlyle Group, which acquired the wired phone and DSL assets from Verizon Hawaii and created the new Hawaiian Telcom brand.
The earnings report was the first released by Hawaiian Telcom, and it provided the first details of the new company's operations and financials. Although not publicly traded and thus not required to release earnings, the company did so to begin communicating with investors.
Among other items, the report showed that Hawaiian Telcom has lost more than 43,000 switched access lines since September 2004, including more than 18,000 business lines. "The company has instituted a 'save-the-line' campaign in an effort to slow the rate of line loss," Hawaiian Telcom said, but added, "It is not possible at this time to quantify the impact of this effort."
Still, the company has shown growing momentum with its DSL Internet business. Hawaiian Telcom has begun to market its DSL service more aggressively, with advertising poking fun at its high-speed Internet competitor, Oceanic Time Warner Cable. And the marketing may be paying off. Hawaiian Telcom has added more than 6,700 DSL lines, including 3,800 since June alone.
On first glance, Hawaiian Telcom's earnings report was far from glowing. Compared with the same time in 2004, Hawaiian Telcom saw its operating revenue for the quarter ended Sept. 30 drop 19 percent, to $120 million from $149 million. The bottom line was a net loss of $59 million for the three months ended Sept. 30 versus net earnings of $2 million during the same quarter in 2004.
But those numbers failed to tell the whole story.
It wasn't just a more than three-fold increase in interest expenses, which rose to just under $30 million, that knee-capped Hawaiian Telcom's financials.
There were also one-time factors associated with being a new company. These included $35 million in transition costs associated with taking over from Verizon.
Furthermore, because of accounting rules that apply to a recently purchased company, Hawaiian Telcom couldn't count $2.5 million in revenue related to its wireline phone business and $16.5 million in revenue from its phone-book business. Finally, there was $6.5 million that Hawaiian Telcom had to pay out in the form of a $21.95 credit to each customer. Those three items alone add up to $25.6 million.
If added to the company's revenue, that would push Hawaiian Telcom's quarterly gross to $146.4 million compared with $149.2 million during the same time last year, when the assets belonged to Verizon.