Subscriber Values: Q3 2008

by Alex Goldman ISP-Planet Managing Editor [December 4, 2008]

Subscriber numbers are from ISP-Planet's list of Top U.S. ISPs and from company reports (and are as of September 30, 2008). Market capitalization data is as of market close, November 21, 2008, as reported on Yahoo Finance.

Our ISP rankings now contain only one pure, public ISP. United Online no longer considers itself an ISP (and is making a lot of money from its flower business). Time Warner is downplaying the importance of AOL.

CLECs
Our CLEC listings require close examination. We are comparing a wide variety of companies, and we welcome your comments. CLEC subscriber values dropped precipitously.

Notes on CLECs
Fairport, N.Y.-based PAETEC reported serving 164,961 T-1 lines. Since it also delivers VoIP and also delivers high margin T-1 lines, its average revenue per customer (ARPU) is higher than many other CLECs on this list, justifying the price difference. The company reported over 47,000 business customers.

Anchorage, Alaska-based General Communications (CGI) competes as a CLEC with the ACS Group (below), which operates more like an ILEC. Nevertheless, GCI has found markets it can own in cellular and cable, as well as interesting niche markets in schools and rural health. Its consumer segment appears to be stronger than the business segment. The company reported the following subscribers:

Anchorage, Alaska-based Alaska Communications Systems Group (The ACS Group). It served 180,541 access lines. It had 150,176 cellular customers (357 resale), 64,692 long distance customers, and 55,033 internet customers (47,639 DSL plus 7,394 dialup). The company is more like a rural ILEC than a CLEC, but its reported subscribers are declining in most segments.

Roseville, Calif.-based SureWest is a small town ILEC once called the Roseville Telephone Company that operates as a CLEC outside its home area. The company's success demonstrates the power of the ILEC advantage. It operates VoIP, cellular, and broadband (mostly DSL). It reported 102,000 broadband subscribers, 60,000 VoIP subscribers, and 58,500 video subscribers. Since its VoIP business was only launched in March, 2008, the take rate is extremely impressive.

ISP sale
Q4 2007 saw one publicly announced purchase of an ISP that we know of. Multichannel news reports that SureWest acquired Everest Broadband for $173 million. The deal closed on Dec. 6, 2007. It covered 37,500 customers and was therefore worth $4,613 per customer. Key to the deal's high valuation were 1,600 commercial customers.

Nevertheless, the article notes:

The price also represents a healthy cash flow multiple–at 9.1 times Everest’s estimated third quarter 2007 annualized cash flow, compared to past overbuilder deals that have been valued at about 8.5 times cash flow.

Since the deal, SureWest's stock has fallen—perhaps one more case of a company being punished by Wall Street for reinvesting cash in its business while others are rewarded for letting equipment expire. The company sold its directories service in Q1 2007. In the past, this would have been a sign of distress, as directories were a profitable monopoly, but nowadays directories are just another business that has been disintermediated by the internet.

Notes
Covad was acqired [.pdf] by private equity. It no longer reports numbers and has been removed from the list.

We have been hearing about many Wi-Fi rollups but most are secretive. Our one recent story (so far) on this subject is about Two Wi-Fi Rollups in Texas.

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