Alaska has two major telecommunications companies, each with its own target market, corporate strategy and \u2014 as was on display this week \u2014 belief in the future of Alaska\u2019s economy.<\/p>\n
This week, GCI and ACS announced their second-quarter financial results, but what was more notable was their CEOs\u2019 attitudes about the stability of Alaskan business in the wake of the Alaska Legislature\u2019s failure to completely erase a multibillion-dollar budget deficit.<\/p>\n
\u201cThe governor and the Legislature have basically given up\u201d on balancing the state\u2019s budget in the near term, GCI CEO Ron Duncan told investors and analysts in a remarkably pessimistic phone call on Wednesday.<\/p>\n
The following day, ACS CEO Anand Vadapalli showed a notably upbeat attitude toward the future. \u201cWe expect an acceleration of growth,\u201d he said of his company\u2019s forecast.<\/p>\n
The companies\u2019 different views are a microcosm of the way Alaskans themselves are divided about what the state\u2019s unresolved deficit means for Alaska. At current rates of spending, according to Gov. Bill Walker, Alaska will run out of savings to balance the budget by 2020. Even before that deadline, Alaskans will see economic impacts \u2014 the loss of the Alaska Permanent Fund Dividend being only the most obvious example. If nothing is done by 2020, the state will confront a choice between bankruptcy or enormous tax increases to balance the books.<\/p>\n
Lawmakers and the governor are expected to take action before that 2020 deadline, but the effect of spending cuts and possible tax increases is unknown: Will it trigger a 1980s-style Great Alaska Recession, or has the state diversified enough to shrug off a reduction in government spending?<\/p>\n
\u201cWe\u2019re expecting the size of the market to compress rather than continue growing,\u201d Duncan said. \u201cWe\u2019re going to see some loss of population over the next several years up here.\u201d<\/p>\n
For GCI, that would have a significant impact. GCI makes a large proportion of its money from individual consumers, people who buy cellphone plans and home Internet. Fewer Alaskans means less business for GCI. While AT&T has the most Alaska cellphone customers of any single provider, according to published figures, GCI is No. 2 and is No. 1 by far in home internet.<\/p>\n
Duncan was the founder of of Alaska\u2019s Future, a coalition intended to pressure the Legislature into action to balance the budget. That didn\u2019t work, and Duncan has now laid out a dim forecast.<\/p>\n
GCI is now cutting back its plans for new construction in 2017. Instead of spending $210 million on infrastructure, it now expects to spend between $158 million and $168 million.<\/p>\n
Duncan said he expects any effects of the Legislature\u2019s actions (or lack thereof) to show up in the fall, but GCI is already seeing a rise in prepaid cellphone customers and a drop in postpaid customers, people who pay bills as a result of a defined contract. Prepaid cellphones are more popular among poorer Americans and those whose financial situation is unstable.<\/p>\n
Over the past year, GCI\u2019s share price has declined from $19.06 per share to $13.70 per share.<\/p>\n
\u201cWe are seeing the state economy having an effect,\u201d said GCI\u2019s chief financial officer, Peter Pounds.<\/p>\n
Look through the lens of ACS, GCI\u2019s principal Alaska-based competitor, and the view is different.<\/p>\n
ACS focuses on service to businesses, not individuals, and those sales grew 8.6 percent when compared to the same period last year. CEO Vadapalli said he expects to improve in the second half of the year.<\/p>\n
Because ACS doesn\u2019t have \u201cthe same exposure to the consumer business that our competition does, there\u2019s a difference in how we are positioned in the marketplace,\u201d he said.<\/p>\n
ACS\u2019 share price was $1.70 per share on Thursday, down from $2.12 per share a year ago.<\/p>\n
Vadapalli said that \u201cwithout doubt, there are some tough choices ahead for the state,\u201d but Alaska isn\u2019t in the same place it was in the 1980s, when plunging oil prices caused a recession, a series of bank failures, and a collapse in housing prices.<\/p>\n
The state\u2019s economy is more diverse, and there are more businesses in the state that are divorced from oil and government. That doesn\u2019t mean those businesses won\u2019t see some effects from a drawdown in oil and government, however. \u201cFrom our perspective, businesses are really thinking hard and thinking out of the box\u201d to mitigate those effects, he said.<\/p>\n
Thinking outside the box might include better integration into the Internet economy, online marketing or other things that ACS makes possible.<\/p>\n
\u201cFrankly, as I like to say, when oil is $100 a barrel, there is no incentive for people to think differently,\u201d he said.<\/p>\n
He referred to an Anchorage Economic Development Council report that called the state\u2019s current economic situation a \u201cpinch,\u201d not a \u201cpunch.\u201d<\/p>\n
\u201cI believe that Alaskans and Alaska businesses are more resilient than people give us credit for,\u201d Vadapalli said. \u201cI have that confidence in us.\u201d<\/p>\n
\u2022 Contact Empire reporter James Brooks at james.k.brooks@juneauempire.com or 523-2258.<\/p>\n","protected":false},"excerpt":{"rendered":"
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