rural_townThe average rural telco saw revenues increase 2.8% between 2014 and 2015, according to new research about rural telecom financials from the Telergee Alliance of accounting firms specializing in rural telecom. This is an improvement over the previous year, when margins dropped 1.7% despite a 2.1% increase in average revenues.

The majority of the margin and revenue growth between 2014 and 2015 was on the unregulated side of the business, where margins increased 3.4% and revenues increased 5.7%. Regulated wireline margins and revenues were essentially flat. Margins increased a scant .3% on revenues that were up just .5%.

The Telergee Benchmark Study has been prepared annually for several years. This year’s study was based on responses from 223 companies – a substantial portion of the 800 or so rural telcos in the U.S. In determining averages, the Telergee study looks at the median company – a practice that helps prevent the results from a few large companies from distorting the results.

Improved Rural Telecom Financials
Chris Skidmore, senior manager in the communications and media practice for Moss Adams, the Telergee firm responsible for compiling the Telergee Benchmark Study, attributes improved rural telecom financials to three key factors – higher average revenue per customer, cost control and lower customer churn rates.

On the broadband side, for example, “we have seen customers moving away from older less expensive products” in favor of higher-speed offerings, commented Skidmore in an interview. He noted, for example, that some rural carriers no longer offer service at speeds below 5 Mbps.

Cost control has come largely through a reduction in the work force, Skidmore said. Although small rural telcos generally try to avoid layoffs, some are opting not to replace people who resign or retire – a trend that Telergee has seen for the last three to four years in its annual research on rural telecom economics, Skidmore said.

The most important contributor to non-regulated revenues is broadband. Between 2014 and 2015, broadband revenues climbed 6% and the number of customers was up 4%. The latter is somewhat surprising, considering that the average Telergee company now has 85% of the broadband customers in its market.

Broadband subscriber growth rates have slowed compared to a few years ago, however, suggesting that the market may be reaching a saturation point. “In 2006, subscriber growth was above 8%,” commented Skidmore. “It’s been coming down gradually.”

Not So Rosy
Other popular non-regulated businesses for rural telcos — including video, wireless and competitive local exchange carrier (CLEC) services – did not perform as strongly as broadband.

Wireless revenues were down 11.9% and customers were down 12.7% in Telergee’s research on rural telecom financials for this year. Skidmore noted, though, that there is a small number of rural companies offering wireless services that have successful businesses with relatively large customer bases. The remaining companies, he said, are struggling in a market where economies of scale are critical to success.

Video also has been a difficult market for small rural telcos to compete in. The results for this year’s study were a bit better than last year’s, however. Those rural telcos offering video services saw revenues increase 9.2% between 2014 and 2015. Skidmore noted, though, that margins were essentially flat and customer counts were down 1.5%.

Skidmore attributes the increased revenues, in large part, to price increases that smaller telcos were essentially forced into as content costs continue to climb.

Small rural telcos’ CLEC businesses performed more poorly in this year’s study than in the one for the previous year. Margins were up just 1.1% and the number of lines was essentially flat, rising just .2%.

Perhaps the difference between 2014 and 2015 performance resulted from carriers reaching a saturation point in the CLEC market.

Investment Fears Assuaged?
One other piece of good news from this year’s Telergee Benchmark Study is that telcos seem to have overcome investment fears that plagued the market earlier in this decade.

Capital expenditures were between 21% and 22% of revenues between 2013 and 2014 and again between 2014 and 2015, after lingering at lower levels for several years prior to that.

The change likely reflects increased clarity about the form that changes to the Universal Service program are likely to take. As a result, “it appears the apprehension to continue to invest has eased a bit,” said Skidmore.

Image courtesy of flickr user María de los Angeles Quiroz.

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