Rural telecommunications companies are seeing the effects of inflation cut into their profitability, which could prompt some to implement new pricing strategies for services they provide to customers.
This and other takeaways are found in the 2023 Rural Telecom Benchmark Study, released today by FORVIS, a leading integrated professional services and consulting firm with deep experience serving clients in the rural telecommunications industry.
The new study is based on 2016–2022 data submitted by 167 telecom companies in 19 states, primarily in the central U.S. The report benchmarks findings against more than two decades’ worth of financial and operational information compiled by FORVIS in previous industry studies. It is one of the largest studies of its kind in the industry.
Study co-authors Marty Fredericks and Matt Macdonald say the data shows that after relatively modest growth in expenses from 2018 to 2020, the last two years tell a different story. Operating expenses increased by 5.1% in 2022, more than double the 2.4% percent increase in 2020, and far above the nearly flat increases surveyed companies reported in 2018 and 2019. The cost of infrastructure and materials such as fiber optics as well as labor is rising, with smaller companies being hit the hardest. Operating income declined year-over-year for all but the largest companies surveyed, those with more than 100 employees.
“The rate of inflation in 2021 and 2022 was dramatically increased over previous years and that’s having an impact on the overall profitability, bringing operating income down for the companies we surveyed,” said Fredericks.
Broadband service continues to be a relative bright spot for rural telecoms, with the growth in internet service revenues helping to offset the relative decline in voice and access service revenues. Another bright spot is the number of companies participating in state and federal broadband grant programs. Of the participating companies, 51% have or will receive grants which supplement some of the costs of broadband infrastructure.
Overall, the average operating income as a percentage of operating revenues was 15.6%, significantly higher than the 2010 low of 8.6%, although still less than high water marks of more than 20% seen in the early 2000s.
Macdonald said the companies will need to begin re-evaluating their pricing strategies in coming years. “It’s the nature of rural telecoms that they hate to raise prices on their consumers because they live in the communities they serve,” he said, “but pricing broadband services at rates that provide the highest broadband speeds at the best value to the customer allows companies to continue fulfilling their mission and serving those customers.”
FORVIS has extensive experience providing tax, assurance, and consulting services to the rural telecom industry. The firm has more than 400 telecommunications clients nationwide. The annual benchmark study draws from this list, each of which received a company-specific benchmark report.
Download the 2023 Rural Telecom Benchmark Study.
