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Hawaiian Telcom TV kicks off around Oahu

The new service is a big opportunity for the phone company, some say

By Alan Yonan Jr.

POSTED:
LAST UPDATED: 02:54 p.m. HST, Jul 05, 2011



Hawaiian Telcom Inc. said it began the staged launch of its TV service on Oahu on Friday, but the company would not say how many customers can order the service or in what neighborhoods it is available.

The state approved Hawaiian Telcom's license to provide TV service last week. With the approval, Hawaiian Telcom, the state's largest phone company, can compete with Oceanic Time Warner, which controls an estimated 94 percent of the cable TV market on Oahu.

A new push by phone companies to get into the television business has proved to be a hit in mainland cities where the newcomers are steadily grabbing market share from entrenched cable companies that have long dominated the market.

Industry analysts say they expect the same will be true on Oahu.

HAWTEL SHARES TO TRADE ON NASDAQ

Hawaiian Telcom Inc. received approval Friday to list its shares on the Nasdaq Stock Market in a move that will make the stock available to a wider group of investors.

The stock currently trades in the over-the-counter market, which is generally reserved for higher-risk companies that can't meet the listing requirements of any of the major exchanges. A Hawaiian Telcom spokesman said the company has not yet set a date when the shares will begin trading on Nasdaq.

To trade on Nasdaq, a company must meet minimum requirements for market capitalization, share price and tangible assets.

Hawaiian Telcom shares began trading late last year in the OTC market after the company emerged from bankruptcy and converted about $600 million in debt into $160 million in stock.

As of Friday Hawaiian Telcom had 10.1 million shares outstanding and a market capitalization of $259.8 million. The stock closed down 12 cents Friday at $25.62.

 

"I think they are going to be a big success. It's a big opportunity for them to take market share away from Oceanic Time Warner," said Lance Vitanza, senior research analyst covering the media and telecommunications industries for Connecticut-based CRT Capital Group LLC.

Hawaiian Telcom, which will transmit the TV programming over its high-speed Internet lines, could capture as much as 20 percent to 30 percent of the Oahu market over time, Vitanza said.

The company should have no problem capturing 10 percent of that market "and within a reasonable period of time could have 20 to 30 percent penetration," he said.

Hawaiian Telcom has been silent on the details of its launch, including how soon it will be available to a majority of Oahu homes. The company said it could not give out that information "for competitive reasons." Residents who live in areas where the service is available will be contacted by Hawaiian Telcom, the company said.

"We are rolling out Hawaiian Telcom TV gradually to selected areas to ensure the delivery of superior service and an ongoing excellent customer experience," Brad Fisher, senior vice president for strategy and marketing, said in a news release. "We will expand the availability and capabilities of Hawaiian Telcom TV service over time and look forward to sharing more as our rollout progresses."

Hawaiian Telcom said more than 250 Oahu residents, including Hawaiian Telcom employees, have been testing the service since late 2010. The company began converting the trial customers to paying subscribers on Friday.

As for what channels Hawaiian Telcom TV will offer and at what price, the company said, "Programming content and pricing are competitive with what is currently provided by cable and direct broadcast satellite operators. Content includes local and premium channels as well as public education and government channels," the company said.

The service will include more than 250 channels, the company said, including the NFL Network.

On the mainland, the two main phone companies that provide television and video service are Verizon and AT&T, and they have experienced explosive growth in markets where they have introduced service.

AT&T had signed up 3.2 million customers for its U-verse Internet TV service by the end of the first quarter, a 40 percent increase from a year earlier. During the same period the audience for Verizon's FiOS service grew 26 percent to 3.6 million customers.

The two companies offer the TV service only in states where they sell land-line service. For AT&T that's 19 states and for Verizon it's 12. Neither company offers the service in Hawaii.

A spokesman for Verizon said FiOS has been met with a "high level of enthusiasm" in areas where the company has rolled it out.

"Consumers had been crying out for a choice for a long time," said Bill Kula, director of media relations for Verizon. "In Hawaii I think consumers will benefit as the iron grip of Time Warner for 30 years comes to an end and Hawaiian Telcom offers its video service," he said.

Big cable companies like Time Warner and Comcast were forced to improve their program offerings and service in markets where they were going head to head with FiOS, he said.

"We would roll out in a particular market, and the local cable provider would suddenly offer HBO free of charge for a year. Then we would respond by offering more HD (high-definition) channels. It's good for the consumer."

Oceanic Time Warner's top executive in Hawaii said the company has continued to improve its service and expand its product offerings as competition has increased from other telecommunications providers.

The company recently added 75 new employees as part of its effort to provide "superior customer service," said Bob Barlow, president of Oceanic Time Warner. "Our employees in Hawaii get extremely high marks compared with other markets where we operate."

Barlow also cited Oceanic's move this week to boost the speed of its premier broadband service to 30 megabits per second as an example of its product upgrades.

CRT Capital's Vitanza said Hawaiian Telcom has increased spending to expand its fiber-optic network in large part to accommodate the new TV service. Hawaiian Telcom spent $78.9 million on capital improvements last year and expects to spend about the same in 2011, according to the company's annual report. The improvements also provide the increased bandwidth required to deliver Hawaiian Telcom's DLS high-speed Internet service.

Hawaiian Telcom uses a "fiber-to-the-node" system in which it runs fiber-optic cables to a street cabinet and then uses lower-capacity copper wiring to make the final connection to individual homes. AT&T uses similar technology with its U-verse service, while Verizon runs fiber-optic cables all the way to the home.

With the fiber upgrades, Hawaiian Telcom will have the technical capability to deliver the new TV service to about 90 percent of the 300,000-plus households on Oahu, Vitanza estimated.

The company should have no problem capturing 20 percent of that market "and within a reasonable period of time could have 30 percent penetration," he said.

"I applaud them for having the foresight to go after the opposition," Vitanza said. "There is going to be some execution risk for them. They're not going to bring Time Warner to their knees, but that's not what it's about. It's about becoming a reliable competitor, and that's great for the average Joe."






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