Rural operators continued to wean themselves from roaming revenues during the second quarter of this year with mixed results as some have been able to make up the revenue shortfall through their own service offering, while others are struggling to find the right mix that will allow them to continue to grow their business at levels acceptable to investors.
During the second quarter, the nation’s two largest rural operators-Dobson Communications Corp. and Western Wireless Corp.-reported sharp year-over-year declines in roaming revenues as a percentage of their total revenues. In both cases the carriers were still able to post improved revenue due to increased service revenues from their own operations, but investors remain skeptical about the ability of those operators to continue to grow their businesses.
“The rural carriers are not immune to the changes that are affecting the entire telecommunications industry,” said independent industry analyst Jeff Kagan. “They are trying to reduce that dependency on roaming, but until the larger carriers either build out their networks in smaller markets or consolidate, roaming will continue to be an addressable revenue avenue.”
Dobson reported a slight increase in roaming revenues during the second quarter from $48.4 million last year to $50.6 million this year, but with a large increase in service revenues related to acquisitions, roaming revenue dropped from 33.8 percent of the carrier’s total revenue during the second quarter of 2003 to 20 percent this year. Dobson also noted its roaming yield had dropped from 23 cents per minute during second-quarter of 2003 to 14 cents per minute this year due to step-downs in its roaming contracts with AT&T Wireless Services Inc. and Cingular Wireless L.L.C, which constitute 90 percent of Dobson’s total roaming minutes.
While Dobson showed it has been able to reduce its dependence on roaming revenues, the carrier warned its own service offerings likely will not continue to make up the difference. Dobson reported that it lost 1,700 internal postpaid and prepaid customers during the second quarter, following the loss of 14,300 internal postpaid customers during the first three months of this year.
Dobson also cut its full-year gross additions forecast from 450,000 subscribers to around 385,000 subscribers, which could result in flat customer growth, and-in combination with lower-than-expected average revenue per user-dropped its full-year earnings before interest, taxes, depreciation and amortization forecast by nearly $100 million.
Investors did not take the revised forecast lightly, sending Dobson’s stock price down more than 50 percent to new 52-week lows.
On the other side, Western Wireless posted a small drop in domestic roaming revenues from $54.7 million during the second quarter of last year to $53.8 million this year, but managed to increase total revenues through strong growth in its subscriber revenues. The carrier also managed to add 10,900 subscribers during the second quarter as well as grow quarterly ARPU from $47.37 last year to $50.22 this year.
Western Wireless has also instituted plans to insulate itself from relying too heavily on one or two roaming partners by deploying both CDMA- and GSM-based technology on its network to go along with its previously offered analog and TDMA capabilities. The carrier noted in its 10-Q filing with the Securities and Exchange Commission that it expects contractual roaming rate reductions likely would be would offset mostly by growth in roaming minutes from both GSM and CDMA roaming partners.
Western Wireless’ confidence translated to investors who have maintained interest in the rural operator and kept its stock price close to its yearly high.
While both carriers are expected to continue to walk the fine roaming line between falling yields and hopefully increased minutes of use, the success of their own operations likely will have the greatest influence on their long-term future. “I think [rural operators] have a short-term future, but the roaming portion of their revenues is tied to how long the bigger operators want to continue to pay,” Kagan added. RCR
