Shentel’s COO: We are quickly evolving into a fiber-dominant network provider
Shentel continues to ride on its fiber-to-the-home (FTTH) journey, passing and connecting more homes within its existing regions and those it acquired via its acquisition of Horizon Telecom.
Speaking to investors during its third-quarter earnings call, Edward McKay, EVP and COO of Shentel said that its efforts to extend the service into more markets enhance its status as an aggressive fiber builder and operator.
“We are constructing fiber in 28 markets and quickly evolving into a fiber-dominant network provider,” he said. “We now pass approximately 554,000 homes and businesses with broadband services, and approximately 59% of these passings are served via fiber in our greenfield Glo Fiber expansion markets or as part of government-subsidized projects to bring broadband to unserved areas.”
During the third quarter, Shentel added over 300 route miles of fiber and its regional fiber network now consists of about 16,400 fiber route miles.
The service provider continued to pass more locations with fiber during the quarter, adding about 24,000 new fiber passings and improving its construction pace by nearly 18% over the third quarter of 2023.
But the provider is not stopping there. McKay said it has a large inventory of new builds on tap.
“Our construction pipeline remains robust with 337,000 additional passings in various engineering stages, permitting and construction, including 51,000 new passings in former Horizon markets,” he said.
Serving the unserved
With several of its expansion markets being in rural areas lacking few broadband choices, Shentel is focused on bringing fiber-based broadband to unserved areas.
Shentel now passes about 326,000 homes and businesses with fiber, including almost 16,000 in former Horizon greenfield markets and over 6,000 in government-subsidized areas previously unserved.
To fund new last-mile broadband builds to unserved homes and upgrade parts of its middle-mile networks, Shentel has been awarded $143 million in government grants.
“Over the past year, we constructed 6,000 new fiber passings as part of government grant projects in unserved areas of our incumbent cable markets,” McKay said. “And after launching data services in a new location, we typically see penetration rates of approximately 38% after 12 months and 50% after 18 months.”
He added that as it nears its goal of completing 28,000 government-subsidized fiber passings, “we see significant customer growth opportunities in these unserved areas.”
Fiber customer growth
As Shentel ramps up construction in its Glo Fiber expansion markets, it continues to see strong customer growth.
During the third quarter, the service provider added about 6,000 net customers and reached over 59,000 total customers.
At the end of the quarter, Shentel’s total data, video, and voice revenue-generating units reached 71,000, up approximately 55% yearly. The broadband data penetration rate in its Glo Fiber expansion markets remained constant at 18.5% yearly as it added 101,000 new passings over the past 12 months.
McKay said that the first year after it launched a “Glo Fiber market, we continue to see typical data penetration rates of approximately 17%, and after 3 years, penetration rates typically exceed 25%.”
He added, "We also expect to reach average terminal penetration rates of about 37% 5 to 6 years after launching service in a new area.”
For example, Shentel’s oldest cohort, launched in late 2019, has reached 40% penetration, and cohorts launched in 2020 are quickly approaching our terminal penetration target.
Driven by the acquisition of approximately 3,000 broadband data customers from its acquisition of Horizon, broadband data subscribers increased slightly year-over-year to over 111,000. Total data, voice, and video revenue-generating units declined year-over-year to approximately 185,000, with RGUs acquired from Horizon partially offsetting losses in Shentel's incumbent cable markets.
Shentel ended the third quarter with approximately 320,000 Glo Fiber passings. It constructed and released to sales 101,000 new passings over the past year in addition to the 15,500 passings it acquired with the Horizon transaction. This gives a 58% growth rate from a year ago.
Mitigating churn, driving APRU
Shentel continued to focus on mitigating churn and driving ARPU during the quarter.
The company’s broadband data average revenue per user increased 6% year over year due to a combination of rate adjustments, additional equipment revenue, and customers selecting higher speed tiers.
Gigabit speeds continued to play a role, with over 45% of its residential subscribers adopting speed tiers of 1 Gbps or higher, including 4% that took 2 Gbps or higher speeds.
“Our broadband data average revenue per user increased 6% year over year due to a combination of rate adjustments, additional equipment revenue, and customers selecting higher speed tiers,” McKay said.
Also, Shentel’s broadband data churn for the third quarter was 1.17%, with former affordable connectivity program customers accounting for six basis points of churn.
“Our churn to competitors remained extremely low and consistent with the previous year,” McKay said. “We've updated our data penetration rates as markets mature and continue to increase penetration rates across all cohorts.”
For the third quarter, Shentel’s broadband data subscribers remained flat despite the impact of the end of the Affordable Connectivity Program (ACP). Data churn for the third quarter was 1.67%, and former ACP customers accounted for 12 basis points of the churn. Shentel said that 80% of former ACP customers remain as customers today.
“We believe ACP churn has peaked, and we expect minimal impact for the remainder of the year,” McKay said. “Even with the ACP impact, we are pleased with the seven basis point year-over-year improvement in churn in the third quarter.”
Fiber drives financials
A big driver behind Shentel’s financial results was its fiber service revenues.
Shentel’s revenue grew 30% to $87.6 million during the third quarter. The company said the former Horizon market contributed $16.9 million of revenue.
Excluding the former Horizon markets, revenue grew $3.3 million, or 4.9%, over a year ago. Glo Fiber, which had $15.1 million in revenue, significantly contributed to growth. The Glo Fiber legacy markets grew revenue, subscribers, and ARPU by 56%, 54%, and 7%, respectively.
However, Shentel’s legacy Glo Fiber revenue growth of $5.3 million was partially offset by declines in commercial and incumbent broadband market revenue. Commercial revenue declined $1.5 million due to the expected decline in T-Mobile revenue.
“As reported throughout 2023, T-Mobile disconnected backhaul circuits as part of the decommissioning of the former Sprint network,” said James Volk, CFO of Shentel. “The revenue declines reflect a total period of these disconnects and a reduction in related early termination fees.”
Meanwhile, Shentel’s incumbent broadband market revenue declined by $1.3 million due to lower video and installation revenue. The telco noted that incumbent broadband data revenue was flat compared to the same period in 2023, as ARPU growth offset the 1% decline in data RGUs.
Driven by Glo Fiber revenue growth, the Horizon synergy savings are beginning to be realized; adjusted EBITDA margin increased to 30% in the third quarter of 2024.
As it continues to build out fiber in existing markets and the former Horizon territory, the service provider continues to make progress in integrating Horizon into its fold.
The provider system completed four of the six back-office system integrations, including the billing system conversion, which it said was the most complex of the six systems to convert. It is now conducting ERP and payroll conversions, which it expects to complete by January 2025.
“We expect margins to improve in future quarters as Glo Fiber revenue continues to grow and we realize the full $11 million in target expense synergies,” Volk said.
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Sean Buckley
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