Hawaiian Telcom posts $44.2M loss
The numbers fail to factor in one-time costs associated with becoming an stand-alone firm
On the eve of the final step in its metamorphosis into a stand-alone company, Hawaiian Telcom Communications Inc. yesterday reported a net loss of $44.2 million.
The loss, on operating revenue of $135 million, compared with net income of $7 million in the previous quarter on operating revenue of $150 million for the company's predecessor, Verizon Hawaii.
Verizon Communications Inc. spun off Verizon Hawaii and sold it to the Carlyle Group for $1.6 billion last year. Since the deal's consummation in May, Hawaiian Telcom has been refashioning itself as the kamaaina telecom, creating the new brand to promote new services designed to add value to the company's land-line phone business.
The transformation comes against a backdrop of slipping demand for land-line phone services, as consumers increasingly cut the cord and use only wireless or Internet-based phones.
By some measures Hawaiian Telcom's financial performance over the past year appears dismal. For the year ended Dec. 31, for example, the company reported an operating loss of $93 million on revenue of $337 million compared with operating income of $90 million on revenue of $595 million in the same period a year earlier.
But those numbers fail to factor in one-time costs associated with the transition, including a one-time goodwill credit for customers, as well as accounting issues that have meant Hawaiian Telcom hasn't been able to recognize certain revenue.
Although privately held by Carlyle, the Washington, D.C.-based equity group, Hawaiian Telcom reported its financials as part of a bond prospectus filed with securities regulators yesterday. In addition to Carlyle's investment, about $30 million in Hawaiian Telcom equity is owned by prominent business executives through an affiliation with Carlyle.
Company officials were staying mum about the numbers yesterday, in anticipation of a conference call with investors on Tuesday. Last night, the company was slated to switch to a new back-office operations system, freeing itself from reliance on Verizon for support services.
Hawaiian Telcom's base of land-line customers is essential to the company's growth plans, which involve enhancing the company's old-fashioned wired phone business with new services, such as high-speed Internet access, wireless phone service and, eventually, television service over the phone lines.
So far, the increased revenue from other services has not made up for the loss of land-line revenue, but the company appears to have begun narrowing the gap.
Altogether last year, Hawaiian Telcom reported that it and its predecessor lost more than 43,000 land lines, including approximately 28,000 residential land lines. Excluding the effects of one-time costs and accounting changes, revenue from local service would have been $238.6 million for the year ended December 31 -- a decrease of $14.7 million, or about 6 percent, compared with 2004.
Meanwhile, Hawaiian Telcom's DSL and Internet revenue increased $11.1 million in 2005, up nearly 46 percent from the previous year, as the company increased its DSL customer base from about 74,000 to just less than 79,000.
Although the company said it was difficult to quantify the effectiveness of a "save-the-line" campaign it started last year to keep land-line customers, the trends appeared to be improving by year end. Hawaiian Telcom reported that 11,000 land line losses were attributable to the loss of just one customer, UUNET Technologies Inc., which happened in the first quarter. During the most recent quarter, by contrast, the company lost about 5,600 land lines and added almost 3,000 new DSL customers.
Although the company's high-speed Internet business is solid and growing, its newly launched wireless phone business is off to a slow start. As of December 31, 2005, the company had just 7,200 subscribers, 1,000 of which were Hawaiian Telcom employees. Total revenue from the external customers was $1.6 million for 2005.
That number of customers is less than what start-up phone company Mobi PCS has signed up since its debut it January, said Bill Jarvis, Mobi's chief executive. Jarvis would not say exactly how many customers Mobi has. But he said its growth rate appears to be about four times that of Hawaiian Telcom's wireless unit.