Market Insight

Consolidation continues, Cincinnati Bell buys Hawaiian Telcom

July 14, 2017  | Subscribers Only

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U.S. regional telecom operator, Cincinnati Bell, announced a merger with Hawaiian Telcom for $650 million (including the assumption of debt). The merger will be a big boost to its pay TV segment, which will see IPTV subscribers at Cincinnati Bell jump from 141,000 to a combined 183,771.

Hawaii Telcom launched its IPTV service in 2011 in Hawaii, and has seen its IPTV subscribers grow to 42,771 at the end of Q1 2017. This represents a 21.1% pay TV penetration in its footprint, but in its most mature markets, pay TV penetration is approximately 34%. Hawaii Telcom’s video revenue grew 20.5% in 2016 to reach $40.5 million and has become 28.4% of total consumer revenues and 10.3% of total revenues in 2016.

Cincinnati Bell launched its IPTV service in late 2008 in the greater Cincinnati metro area and has grown to 141,000 IPTV subscribers in Q1 2017, with a 25.86% pay TV penetration. Video revenue at Cincinnati Bell grew 30% in 2016 to reach $125.7 million and now represents 33% of consumer revenues and 10% of total revenues in 2016.

Our analysis

Regional IPTV operators are doing their best to carve out a niche for themselves in the increasingly congested pay TV video marketplace. While video penetration for both companies is lower than incumbents, they represent successful efforts. The combination of the two companies is somewhat counterintuitive, given their geographic separation, but makes sense in terms of company scale and position in their respective marketplaces.

For Cincinnati Bell the geographic separation may be a stretch, large geographic separations for smaller pay TV operators have been problematic historically, and sometimes even for larger pay TV operators. In 2010 Cablevision, which serves the greater New York City metro area, acquired Bresnan Communications, a Colorado based cable operator. Three years later Cablevision sold Bresnan to Charter, the geographic separation being too much for the company to overcome. Like Cablevision, Cincinnati Bell has its work cut out for itself as it integrates its Hawaiian assets. However there are instances where the geographic separation can be overcome

For Hawaiian Telcom the move makes sense because the fees required by channel groups for linear channel carriage make margins difficult for even the largest pay TV operator. Cincinnati Bell brings economy of scale to the deal, improving video margins. IHS Markit believes that Hawaiian Telecom was paying rates 1.5x those of larger operators. In addition, Hawaiian Telcom operations will be able to leverage Cincinnatti Bell’s capital for its continued fiber expansion statewide.

Hawaiian Telcom video customers aren’t likely to notice a huge change in service in the short term. Both companies have a history of consistent subscriber growth which isn’t likely to change as Cincinnati Bell takes over operations.

Cincinnati Bell
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