HawTel plan banks on success of Next Generation TV


POSTED: Wednesday, November 11, 2009

During U.S. bankruptcy court proceedings yesterday, one fact became clear: Hawaiian Telcom is banking on the success of launching video and television services to become profitable in upcoming years.

HawTel's turnaround strategy includes the 2010 launch of Next Generation Television (NGTV).

With the roll-out of this “;triple play”; of products, it could then offer phone, high-speed Internet and TV as a package, competing head to head with Oceanic Time Warner Cable, its main rival in Hawaii.

Day two of proceedings for the confirmation of HawTel's bankruptcy reorganization plan, pivotal to whether it might be able to carry out this plan, continued with a new round of testimony.

Attorneys continued to debate the valuation of the company's assets—which HawTel has placed at about $460 million based on consultant estimates but which the committee for unsecured creditors says is more than $200 million too low.

Nick Melton, managing director of Lazard Freres & Co. LLC, HawTel's financial consultant, testified yesterday on his methodology for coming up with $460 million.

Compared with other telecommunications companies, he said HawTel had higher operating costs due to running an outdated network near the ocean, where it is subject to salt air and corrosion.

Also, the company has a lower number of lines per central office, making it less efficient.

While some mainland local exchange carriers get federal subsidies, HawTel does not. Also, HawTel is in direct competition with Oceanic everywhere in the isles.

HawTel—when compared with nine other companies—comes out at the bottom of the totem pole in its cash flow.

The committee's consultant, FTI, on the other hand, valued HawTel's assets at closer to $682 million by comparing it with different companies and using different multiples. The committee alleges that HawTel “;grossly undervalued”; the company's assets by discounting the company's real estate holdings.

Testimony continued in the controversy over whether easements—the areas through which HawTel's network of cables and fiber run, typically on poles shared with Hawaiian Electric Co.—had any real estate value.

While creditors say the easements are worth about $50 million, HawTel's real estate appraiser, Robert Hastings, testified yesterday that they had no value because there would be no buyers for them.

Since they are restricted to power and communications equipment, there is a limited market for them. Under federal and state laws, other telecom companies already have the right to attach their lines to HawTel's poles and conduits.

HawTel, which filed for Chapter 11 reorganization in December, plans to convert about $590 million of its senior secured debt into equity and a $300 million loan.

Attorneys are expected to deliver closing arguments on Friday.