GCI cuts capital project spending over Alaska's failure to implement fiscal plan

General Communications Inc. is cutting as much as one-fourth of its panned capital project spending next year in light of the state of Alaska’s failure to implement a fiscal plan during its 2016 marathon legislative session.

 

“The state government has not been able to adopt a workable long term fiscal plan in 2016,” according to a statement from GCI in its second quarter earnings announcement Tuesday. “As a result, we have announced that we will be reducing 2017 capital expenditures by 20 to 25 percent from our 2016 forecast of $210 million. This implies 2017 capital expenditures of $158 to $168 million.”

GCI President and CEO Ron Duncan has been an outspoken supporter of plans such as those put forward by Gov. Bill Walker and approved by the state Senate to restructure the Permanent Fund to use earnings to pay for state government. The House failed to have a floor vote on the Senate bill, leading Walker to veto $1.3 billion in state spending, including $666 million from Permanent Fund Dividends to reduce this year’s check from more than $2,000 to $1,000.

Duncan is the founder and one of the co-chairs of Alaska’s Future coalition, which has organized a campaign to encourage legislators to approve a fiscal plan and for the public to support such a plan.

Curbing capital project expenses will put a damper on two years of growth for GCI and throw a wrench into optimistic plans for a chunk of money gathered in 2015 and 2016.

GCI has been aggressively expanding its rural presence in 2016 by adding redundancies to existing broadband networks. Recent moves were also projected to add about $200 million in revenue for GCI.

The TERRA network, which lays terrestrial broadband and microwave towers across Southwestern, Western and Northwestern Alaska, and already includes 72 locations. The total number of rural locations under GCI coverage will grow to 84 after recently announced additions to Red Dog Operations and the village of Noatak are completed, scheduled for 2017, the latest in a round on TERRA expansions announced in 2016.

GCI’s rural presence has also spanned into the Gulf of Alaska.

On July 29, GCI acquired the Kodiak Kenai Fiber Link from Kodiak Kenai Cable Company for $20 million. The low-latency redundant fiber link connects Anchorage, the Kenai Peninsula and Kodiak.

In 2015 and 2016, GCI made some extra cash with roaming agreement changes and an asset sale.

Late in 2015, GCI renegotiated its roaming agreements with Outside carriers whose customers travel to Alaska. The new deal secured the lucrative agreements by lowering the cost to the carriers. This cost $25 million for GCI, but also cemented the $100 million the contracts are worth.

GCI also made a sale-leaseback agreement on May 4 to sell its urban wireless tower and 275 rooftop sites to Vertical Bridge for $91 million, or approximately 20 times what the towers bring in for GCI, according to Vertical Bridge. This sale closed on Aug. 1.

The capital expense cut for 2017 projects comes during a time when GCI is still adjusting to its new business since acquiring full ownership of Alaska Wireless Network in 2014 for $300 million.

Second quarter financials show that roaming backhaul agreements are still eating into GCI’s revenue after they caused a flat first quarter, but also that income are climbing out of the AWN-driven income gaps in 2015.

GCI’s net income was $3.4 million in the second quarter of 2016. For the same period in 2015, the company ran a $15.6 million loss. Losses ran through GCI’s balance sheet in 2015 as the company absorbed the expenses of buying AWN.

In the second quarter of 2016, the company’s revenue dropped to $234 million, 6 percent less than the same period last year though a 1 percent improvement over the first quarter.

Wireless revenues declined from $67.9 million in the second quarter of 2015 to $53.9 million.

Wireline revenues held steady over last year at $180 million, but consumer revenues of $84 million in the second quarter are a 6 percent decline year-over-year and 1 percent sequentially.

• DJ Summers is a reporter for the Alaska Journal of Commerce. He can be reached at daniel.summers@alaskajournal.com.

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