The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas has been forced to endure a “painful” 50 per cent year-over-year increase in electricity costs, a senior executive yesterday saying 2012 revenue and profit growth had been driven largely by its broadband Internet and new products.

Coming off a third quarter where net income fell modestly by 4 per cent to $6.084 million, Barry Williams, its senior vice-president of finance, told Tribune Business that the BISX-listed communications provider had seen 10 per cent growth in its Coralwave Internet broadband product during the first nine months of 2012.

Explaining that this growth had been aided by Cable Bahamas’ digitisation initiative, which required the company to ‘unbundle’ its cable TV and Internet products, Mr Williams said this had also contributed to the 22.7 per cent year-over-year third quarter increase in its depreciation/amortisation costs.

The almost $1 million increase in this line item was the main factor in Cable Bahamas’ net income dropping during the 2012 third quarter, although the bottom line for the first nine months remains 22 per cent up on 2011 at $18.65 million.

Mr Williams told Tribune Business that while revenues for the first nine months were up 15.4 per cent on 2011, at $84.394 million compared to $73.153 million, much of this growth had come from new product lines.

Apart from Internet, Cable Bahamas’ main growth areas were its ReVoice fixed-line phone product and Video-on-Demand (VOD).

On ReVoice, in particular, year-over-year comparisons are difficult, given that the business was only launched at the 2011 third quarter-end. And its legacy business, Systems Resource Group (SRG)/IndiGo Networks, was only acquired in May last year.

As a result, 2012 is the first full year of ReVoice, as opposed to seven (or three, depending how you view it) months last year, explaining why there appears to be significant revenue growth. And VOD was also launched earlier in 2012, making comparisons difficult and year-over-year revenue growth.

“Clearly, the new areas are the ones where we’ve seen growth,” Mr Williams told Tribune Business. “The other businesses, the growth is very minimal. It’s been voice, VOD and a bit on the premium revenue side.”

While conceding that Cable Bahamas’ market share in fixed-line voice could not be described as “significant just yet”, Mr Williams said: “We are making some inroads into it, but it will take us a couple of years before we can make the comment that we have a significant portion of the market.”

He estimated that Cable Bahamas currently held a 5-10 per cent share of the fixed landline market, adding that the company “certainly have north of 10,000” subscribers.

Explaining the reason for the increase in depreciation/amortisation to $5.274 million during the 2012 third quarter, Mr Williams said: “We’ve been digitising the network as one of our URCA obligations.

“We’ve spent quite a significant amount of money on that, and a lot of that capital expenditure is now starting to become amortised.

“In addition, we did have some intangibles that we did take on when we purchased SRG that would not have been part of the numbers from 2011. That is being amortised as well.”

While investors would “not see these kinds of jumps” in amortisation costs going forward, Mr Williams confirmed there would be consistent depreciation of digitisation costs.

Adding that digitising its network had cost Cable Bahamas “millions of dollars”, Mr Williams said the project would be finished this year.

“It was essentially a two-and-a-half year project that we’ve been able to complete in two years,” he told Tribune Business.

He added that the project would aid consumer choice, as Bahamians would not longer be forced to take its cable TV product if they wanted Internet service.

“On the broadband side it’s probably in the neighbourhood of 10 per cent growth,” Mr Williams told Tribune Business.

“Broadband is still fairly strong, and some of that is coming off as a result of the launch of that ReVoice service, and a bit as a result of digitisation.

“We’ve had to go into every home, and as we went into every home to digitise we had a sales component working at the same time, so potential customers we did not anticipate adding, we’ve been able to sign them up.”

Growth on the Caribbean Crossings and Maxil Communications side has been “pretty much flat”, but Mr Williams said the cable TV segment had seen a “rebound” on premium products.

Growth in the cable TV business was “probably in the neighbourhood of 5 per cent”, consistent with traditional patterns.

Cable Bahamas’ operating expenses, meanwhile, had risen by 15.4 per cent - the same rate as revenue growth for the nine months to end-September 2012, hitting $49.926 million.

And for the 2012 third quarter, the rate of operating expenses growth - 10 per cent - had exceeded the 8 per cent increase in revenues to $28.048 million.

“Utilities are a very painful one for us, as it is, I would imagine, for most people and companies,” Mr Williams told Tribune Business. “Year-over-year we’re looking at our electricity costs, including the fuel surcharge, increasing more than 50 per cent. That’s not a small percentage, and I guess it’s a reality all of us in industry are having to deal with.”

Cable Bahamas’ programming rates were also up 15-20 per cent year-over-year.

Still, Mr Williams told Tribune Business of the 2012 financial performance: “We’re pretty much on target, and if we continue on this trend I think we will have accomplished our goals for the year.”

Apart from its pending $65 million acquisitions of Summit Broadband and Marco Island Cable/NuVu in the US, Mr Williams said the company’s homegrown growth in 2013 would likely be limited to organic opportunities - particularly the business lines it had seen improvement in this year, fixed voice and VOD.