The changing telecom landscape, with its regulatory reform and shifting market trends, is helping drive new marketplace realities for carriers, particularly tier 2 and 3 carriers. Growing consolidation among these smaller players is one outcome of this changing landscape. But will we also see many companies going out of business or having to restructure?
Otelco, a publicly traded ILEC holding company (NASDAQ: OTT), with 11 service territories in Alabama, Missouri, and New England filed a chapter 11 bankruptcy restructuring plan on March 24th. Based in Oneonta, Alabama, Otelco serves over 100K voice and data connections across their entire footprint.
“Otelco filed for chapter 11 in order to implement its ‘pre-packaged’ financial restructuring plan – a plan that already has been accepted by 100% of the Company’s senior lenders, as well as holders of over 96% in dollar amount of Otelco’s senior subordinated notes who cast ballots,” reports the company in a press release.
According to reports, the loss of a wholesale voice service contract with Time Warner Cable (TWC) and “…recent rulings by the FCC…” provided Otelco with too much of a revenue hit for them to service their existing debt. The TWC contract reportedly represented 12% of Otelco’s total revenue during the first three quarters of 2012.
Otelco’s issues remind all carriers of the importance of revenue diversification in today’s marketplace. Companies who have an over reliance on voice based revenue risk significant future challenges, as the market continues its transition to data based services, including IP voice services.
Is Otelco an isolated incident, or an indicator of what’s ahead for many other traditional ILECs who are unable to transition fast enough?
Of course there will be more. Isn't that the FCC's plan?
Yes, i believe it is Jordan. As Washington works, those companies and individuals that have the ability to be a large donor to either political party seem to end up getting there way when new laws are implemented. So as the old saying goes, somebody is going to be, Odd Man Out", and it looks like that is going to be small rural carriers.
On top of the financial issues ILECs are now being pounded with Interstate regulatory reporting requirements at the same time that the FCC is liting their ability to absorb these increased costs