The top executives at Integra Telecom Inc. on Monday said the company’s exposure to competition from U.S. cable companies is negligible.
Comcast Corp. and other cable operators are making steady progress capturing new small- and medium-sized business accounts. These accounts traditionally have been the bread-and-butter of the competitive local exchange carriers, or CLECs like Integra, that were born out of the Telecommunications Act of 1996.
In a second-quarter call with analysts, Integra executives implied that less than 9 percent of its revenues are vulnerable to the cable companies.
Our primary cable competitors are Comcast and Cox. Based on where we see them in the market plus our understanding of their current results, their traction in the market is dominated by small business, which generally translates to customers that bill less than $200 a month,” Integra Chief Financial Officer Jesse Selnick said. As an investor presentation indicates, “we only currently generate 8.3 percent of our recurring revenue from customers that spend below $200 in MRR [monthly recurring revenue] with Integra. This is down from 9.7 percent just one year ago.”
Also, we continue to do an impressive job protecting this small business space,” Selnick said. “Year to date, churn has averaged 2 percent for sub $200 MRR customers. So the small end of our base is not a significant portion of our revenue base and at 2 percent churn, we believe we are doing an excellent job minimizing any competitive headwinds.”
In a special report earlier this year, Moody’s Investors Service said a number of CLECs including Integra were vulnerable to competition from the cable companies in light of their reliance on voice services revenues. Integra anticipates continuing to see shrinkage in its traditional products like legacy voice.
But the company is focused largely on its strategic products like managed voice and cloud firewall. Strategic products oriented to enterprise and wholesale customers comprised 77 percent of new sold revenue in the second quarter. That’s up from 56 percent in the first half of last year, Selnick said.
Integra, which provides communications services across 35 metro areas in 11 states in the western U.S., reports that its target base of customers spending more than $1,000 per month in recurring revenue represents the lion’s share (61 percent) of its revenue base. That is up from 57.5 percent in the year ago, Selnick said.
In the second quarter, Integra posted a net loss of $23.51 million on revenues of $148.55 million. In the year-ago quarter, the company reported a loss of $26.68 million on revenues of $151.27 million.
The company posted its second consecutive quarter of growth in revenues and earnings before interest, taxes, depreciation and amortization. Integra also projects continued sequential growth. However, Integra Chief Executive Kevin O’Hara disclosed that Integra no longer expects to generate annual revenue growth over 2011.
O’Hara explained that Integra made significant changes to its sales organization and sales leadership team in the second quarter, causing some short-term disruption that could have an impact on fourth-quarter results.
Im confident that these changes are the right things for the business and should contribute to a meaningful improvement in the level of our sales as well as lower our overall cost of sales,” he said.