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With their wireless
footprint, improved technology and ability to capture market share from the competition, Alaska Communications Systems Group is clearly
benefiting from a rapidly growing Alaskan marketplace, whose wireless penetration rate is
now about 53%
Technology
Telecom Service - Domestic
(ALSK-NASDAQ)
Alaska Communications Systems Group, Inc.
600 Telephone Avenue
Anchorage, AK 99503
Phone: 907-297-3000
David Wilson
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
May 18, 2006
BIO:
David Wilson serves as the Senior Vice President, Treasurer and Chief Financial Officer of
Alaska Communications Systems (ACS). He is responsible for the ACS treasury, finance,
revenue requirements, and tax functions.
In his previous position, Mr. Wilson was Chief Financial Officer of Triumph
Communications, a subsidiary of Hughes Electronics. Prior to this, Mr. Wilson was at
DIRECTV Broadband (formerly Telocity Inc.) where he was appointed CFO, after serving as
Vice President of Finance and Chief Accounting Officer. At Telocity, he helped lead the
Company through its initial public offering and eventual sale to DIRECTV. Mr. Wilson also
spent 10 years in public accounting at PricewaterhouseCoopers in both international and
domestic offices. At PricewaterhouseCoopers, Mr. Wilson managed a portfolio of
high-profile publicly traded network and communications audit clients.
Mr. Wilson is a Chartered Accountant, and holds a
Bachelor of Commerce, from the University of Birmingham, UK.
Company Profile:
Headquartered in Anchorage, Alaska, Alaska Communications Systems (ACS) is a
customer-focused, facilities-based integrated telecommunications provider. The largest
local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States, ACS
offers strong growth opportunities premised on an attractive, growing customer base and a
new customer-focused marketing strategy. The company has an asset mix matched to the
growth segments of the industry and an operating model that serves customers via
one-stop-shop and extracts synergies in back office costs. Today, ACS is the only Alaskan
provider that owns its entire infrastructure for local and long distance telephone
services, Internet and wireless. In addition, through a partnership with DISH Network, ACS
offers satellite television. Also noteworthy, ACS is one of two statewide wireless service
providers in the under-penetrated Alaskan wireless market and the only one with a CDMA
network offering very high speed mobile data via 3G EV-DO technology. Altogether,
ACS’ one-stop-shop is a differentiator as is its workforce, organized by customer
segment. Using its cutting edge wireless product offerings to drive bundling, ACS intends
to gain market share and increase its “share of wallet.” Combined with a strong
financial foundation and a new dividend program, ACS is an attractive investment
opportunity.
CEOCFO: Mr. Wilson, will
you tell us a bit about your background with the company?
Mr. Wilson: “I have been with the company since March of
2004, when I arrived as CFO. I was part of a management reshuffle executed by our current
CEO, who arrived in October of 2003.”
CEOCFO: What was the
company vision back then and how has that developed so far?
Mr. Wilson: “Liane Pelletier assumed the role of CEO in
October 2003 and her immediate focus was to change ACS from a product to a customer
centric organization. To succeed, our number one priority is to delight our customers and
this attention to our customer needs is driving improvements in the operational and
financial performance of the company.”
CEOCFO: How do you make
your customers happy?
Mr. Wilson: “It is about quality of service. We focus on
providing ‘best-in-class’ wireless service throughout the state of Alaska, and
we have been spending and investing heavily to upgrade our wireless network with the same
technology that Verizon Communications (NYSE: VZ) uses so successfully in the lower 48
states. It is the only third generation EVDO/ CDMA technology statewide. As part of that
CDMA network, we provide wireless data access throughout the footprint, which peaks 2.4
Mbps in the more densely populated areas. ACS’ voice and data roaming agreements also
provide customers with high-quality service and access throughout the nation.
Additionally, customer service at ACS means being responsive to and understanding customer
needs and providing customers with reliable services that they want.”
CEOCFO: What services
are growing the most for you?
Mr. Wilson: “Wireless is clearly the key growth driver
with revenues increasing 52% last year. Post paid subscriber growth was robust, increasing
28%, a rate of growth rate that was significantly higher than the market rate. Another key
area of growth was high-speed Internet, where we posted a 45% increase in DSL subscribers
during 2005.”
CEOCFO: How are your
retention rates?
Mr. Wilson: “Our retention rates for post paid wireless
are extremely strong with churn running at 1.8% churn per month during 2005; for a
regional wireless player that is a ‘best-in-class’ retention rate.”
CEOCFO: Will you tell us
about the competitive landscape and how you continue to grow share?
Mr. Wilson: “In terms of the wireless market, it is
different from the wireless market to which you are accustomed. There are only two
statewide providers; one is Dobson Communications Corporation (NASDAQ: DCEL), which goes
under the brand Cellular One, and ACS is the other; the rest are small regional companies.
In terms of the market itself, it is probably less intense from a competitive standpoint
than the lower 48 market. The wireline market is, however, very different and is among the
most competitive in the US. We have one major competitor, GCI (NASDAQ: GNCMA), which
focuses on long distance and cable and has successfully built up a CLEC business by
reselling local services over our copper lines. GCI is now in the process of transitioning
its CLEC lines over to cable telephony.”
CEOCFO: Are you able to
bundle your services together for your customers and is that an important feature for
them?
Mr. Wilson: “It is very important. We have been a
trailblazer, providing products ahead of others in the United States. Probably the best
example of that is our “mobile to home” service that benefits retail customers
of both our wireline and wireless services by providing them with free calling between
their home and cell phones. That is an interesting convergence of technology that has a
high level of demand, low marginal cost and differentiates us from our competitors. Other
examples include discounted bundles; we have a very popular $49 bundle for DSL, which
combines local service with a sizable bucket of LD minutes.”
CEOCFO: In the wireless
area, is it about taking service away from other people or is it about getting new
customers to the wireless area?
Mr. Wilson: “We are successful doing both. With our
wireless footprint and our improved technology, we have seen a real pick-up in terms of
the rate of growth. The Alaskan market’s wireless penetration rate is now about 53%
and is growing at a faster rate than the market in the lower 48 states. While we clearly
benefit from a rapidly growing market, we have also been very successful in taking share
away from others. We grew our post paid wireless subscribers by 28% last year, a far
higher rate of growth than the Alaskan wireless market, which grew by approximately 13%.
The difference in growth rates is reflective of taking market share; we believe we operate
the most robust network in the state, and customers who care about the quality of service,
tend to gravitate toward the best network.”
CEOCFO: You mentioned
customers that care about the quality; do you find there are customers who do not?
Mr. Wilson: “When you look at wireless market surveys,
the most important thing that customers care about is the quality of service. We have been
very successful there. Our competitors focus on a segment in the market that is much more
price conscious, with offerings that include pre-paid cellular services. We will be
launching pre-paid services on our CDMA network during 2006, providing another avenue for
growth.”
CEOCFO: Do acquisitions
play a role for you?
Mr. Wilson: “We have significant organic growth
opportunities within our existing business and our time is best spent, and our
shareholders are best served, pursuing those. Acquisition targets in Alaska are limited.
By mid-2006, we will complete our wireless build across all the areas of the state that we
wish to cover, limiting our demand to roll up any additional wireless carriers. We
are also less interested in buying wireline businesses due to secular declines. The idea
of buying properties outside of Alaska probably makes less sense due to the significant
geographical distance involved - we are a three hour plane ride from Seattle.”
CEOCFO: You just
released your year-ended fourth quarter figures, what should people be looking at there?
Mr. Wilson: “The thing that is most exciting is our
ability to grow free cash flow and pass a portion of that increase through to shareholders
via a 7.5% increase in our dividend. Cash flow growth was driven by two major areas.
Firstly, organic growth from operations, particularly wireless where we grew our wireless
revenue by over 50% in 2005, drove significant incremental cash flow. Secondly, the
strength of our operational performance provided us with a platform to restructure our
debt. We have reduced our weighted average cost of debt by 200 basis points and paid down
more than $92 million worth of debt since the end of 2004. The reduction in the weighted
average cost of debt is particularly impressive as it has occurred against a back drop of
rising rates, up about 150 basis points, and an improvement in our interest rate risk
profile where a 100% of our debt is now fixed rate.”
CEOCFO: What is ahead
two or three years down the line?
Mr. Wilson: “In terms of opportunities, it is clearly
continuing to grow wireless share by leveraging the best wireless network in Alaska to
take advantage of the market opportunities in the state. We will also extract efficiencies
within ACS through process improvement, changing the way that we do business in every area
at ACS. The entire ACS team is focused on growing our business within our current cost
base - process improvements present the best opportunities to accomplish this goal.”
CEOCFO: Is reaching
investors a focus for you?
Mr. Wilson: “Absolutely, and we have been successful in
doing that. At the end of 2004, we had two active sell side analysts covering ALSK, that
number grew to eight in 2005 adding such blue chip names as JP Morgan Chase & Co.
(NYSE: JPM), Lehman Brothers Inc. (NYSE: LEH), Merrill Lynch (NYSE: MER) and Bank of
America Corporation (NYSE: BAC). With a high dividend structure, we have really been able
to garner the attention of the national press and this is a prime example on the call
today. In addition to CEOCFO, we have also been covered by Barron’s two times - in
March of 2005 and also in February of 2006; we have various mentions in The Wall Street
Journal and an article in The New York Times. I think we are an interesting story –
there is an interest in yield securities, particularly with a change in the tax structure
for dividends. We have been able to make a big splash for a small company in terms of the
amount of national attention we have been able to gather.”
CEOCFO: What should
investors know that does not jump off the page, and why should they be interested in
general?
Mr. Wilson: “If you look at stock market performance
over the last 6 to 8 years, it has been a roller coaster ride for investors. With the
change in the tax law there is an increasingly large segment of the investor base looking
for predictability of returns by demanding dividend yield. While a number of companies
have pursued a similar strategy to ACS, providing a supply of yield-orientated securities,
our key area of differentiation is our ability to increase the dividend over time. We have
been able to provide sizable increases in the dividend each year since its initiation in
2004 and we believe we have the portfolio of assets and market opportunities, that barring
any major disruption to the market, will enable ACS to continue to grow free cash flow and
cash available for distribution over time.”
CEOCFO: In closing, as
CFO, how do you view your role and why should people have confidence in ACS?
Mr. Wilson: “In an organization our size, the CFO role
is varied, multi-faceted and very hands-on. A key requirement is to be an agent of change
and to drive continuous improvement in the way that we operate. The role covers
traditional finance functions such as improving management information so we can better
understand and exploit opportunities, vendor management and exploiting the implementation
of SOX 404 to ensure we derive operational benefits that outweigh the costs
implementation. The role also requires operational input; for example, I was the lead
executive on our DSL process improvement team that was responsible for slashing the cost
and the time to install our service.”
“In terms of having confidence in ACS, we are focused on building relationships with
investors based on trust by providing fair and honest disclosure and making sure we are
successfully executing against our stated goals.”
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