When the Salt Lake Tribune published their story as to what’s going on with Prime Time Communications, they noted that they were unable to reach anyone for comment. Yours truly, however, scored a 40-minute phone interview with Bryon Wentzlaff, one of their VPs. From the sounds of things, it’s just one more example of why telecom is a tough business to break into no matter who you are. Prime Time hit a point where they were not making money and didn’t project doing so for the foreseeable future.
Bryon gave me a breakdown of their expenses. Right off the bat, $125K/mo goes to UTOPIA for transport. That’s about half of their monthly gross right there and reportedly higher than what several other providers are paying. There’s a possibility that part of that is to pay down debt from MSTAR. They also inherited a bum deal for data transport from MSTAR using Center 7. Originally, they were required to pay in the neighborhood of $90K/mo which they negotiated down to $35K/mo. They got quotes from other carriers like Level 3 that put the price at $10K/mo. For those who don’t know, Center 7 and MSTAR were in the same group of companies, and one of the investors inked a 5-year deal just before selling the company as a way to extract more money from the deal on the side. Given that this same group also owns (owned?) SCO, it’s not surprising to hear about that kind of sleaze.
So far, you have around $160K/mo in expenses on $250K/mo in revenues. That, however, doesn’t include basic operating expenses, the cost of video programming, or the cost of phone service. On a $90/mo triple-play, Prime Time had to shell out $30 in programming, $35 in transport, and $7 for phone, leaving a scant $18/mo to cover all operating expenses. They also sunk around $2M into purchasing new set-top boxes and ATAs to replace the ones MSTAR was using. With no more than $54K/mo in revenue after video, data, and phone service expenses and all that money tied up in equipment, it would be a real feat to pull off profitability.
Their projections also ended up being off, but that’s not entirely their fault. UTOPIA has around 8500 homes currently attached to the network that can be subscribed to services; Prime Time had 3,000 of them. They had banked on another 10,000 homes being available per UTOPIA’s projections and had planned accordingly. Without those additional homes, it becomes hard to justify cross-subsidizing from other business units to keep things going, especially when several of those have folded.
So where does this leave current subscribers? Prime Time has said that they’re going to keep providing service to UTOPIA customers until they have some kind of transition plan. It could mean that another provider will step in and buy up the customer base, it could mean that customers will be told to switch to another provider.
One problem we discussed is that lots of new providers are coming on, but not a lot of new potential subscribers. Each provider can only get a smaller and smaller slice of the pie, and those slices aren’t really enough customers to keep a company going on its own. This leaves the providers to try and find new revenue streams with services, just like the big boys. It could be selling backup services, rolling a creative VOD solution, implementing some kind of remote computer, you name it. The margins are so thin on traditional triple-play that you have to do this, make it up on volume, or score some large commercial clients. Even if UTOPIA starts a rapid expansion (and I mean going to 20K+ homes by the end of 2011), I don’t doubt we’ll see some other providers call it quits.