Alaska is a large state with a small population. So a good question to ask before anybody invests a penny in Alaska Communications Systems (Nasdaq: ALSK) is this: How many telecoms can only 710,000 residents support?
At the moment, there are three main carriers fighting for a foothold in the permafrost. Besides ACS, with a mobile subscriber base of 116,200 at the end of March 2011, there are General Communication (Nasdaq: GNCMA), with 126,400 wireless customers, and newcomer (since 2007) AT&T (NYSE: T), with an estimated 150,000 subscribers halfway through that year.
And -- uh oh -- Verizon (NYSE: VZ) is reportedly on its way by the end of 2012.
This certainly feels like an overfished pond, so ACS did what almost every other telecom has done when up against the wall. It followed Verizon's and Sprint's lead and got the iPhone. Despite the usurious terms Apple (Nasdaq: AAPL) squeezes from mobile carriers, along with the even narrower profit margins that the iPhone brings with it, ACS signed on the dotted line and began offering it on April 20.
Whether having the iPhone has made ACS more competitive with AT&T now (or with Verizon when it shows up) is what we hope to find out when ACS' earnings statement comes out Monday. Two things to look at in that regard:
- The churn rate: Has it lowered as iPhone hungry clients choose to stay rather than switch to AT&T?
- The profit margin: Just how much has subsidizing the high cost of the iPhone shaved off the ACS bottom line?
And, of course, income-hungry investors will be wondering if Alaska Communications will be able to continue doling out a dividend. For the last quarter it was compelled to cut its generous dividend by 75%, from $0.20 a share to $0.05.
The future
It may seem like Alaska Communications is going to be squeezed mercilessly between AT&T and Verizon, not to say its indigenous Alaskan rival, General Communication. Is there anyway it can escape alive? Well, yes, there is, and I plan on discussing it in my analysis of the ACS earnings next week. So stay tuned.
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