Homer Alaska - Business

Story last updated at 6:54 PM on Wednesday, February 23, 2011

Vadapalli tapped to engineer growth at ACS in his new role as CEO

By Andrew Jensen
Morris News Service - Alaska


Greg Martin

Anand Vadapalli, CEO of ACS

Anand Vadapalli will apply his love for "elegant design" to his new role as CEO of Alaska Communication Systems Inc.

Vadapalli, 45, a mechanical engineer by training who has worked in the telecom sector since 1996 and at ACS since 2006, became CEO of the Anchorage-based company Feb. 1.

He joined the company as a senior vice president of network and information technology, became the chief operations officer in late 2009 and was tapped by the board of directors to succeed Liane Pelletier Dec. 1.

Engineers aren't typically known for their people skills, but Vadapalli said his drive and intensity in previous positions will be brought to bear on the broader range of responsibilities that come with the top leadership post.

"In my early days I was wrapped up in technology and architecture," he said. "Elegant design was such a beautiful thing for me. Now, over the last many years, my focus has shifted and I am just maniacal about customer experience. That is the thing that drives me every single day."

Vadapalli, a married father of two who grew up and attended both college and graduate school in India, said he sees two customer bases to serve, and one of them is his workforce.

"Give them the tools they need, give them the support they need and get the hell out of the way and they will take really good care of our customers," he said. "To me, you take care of your customers, you take care of your employees — these are the basic things that let magical things happen to your business."

The last year was a transitional one for ACS beyond its change in leadership. Rival Anchorage telecom General Communications Inc. surpassed ACS during the second quarter of 2010 to become the No. 2 wireless carrier in the state thanks to gains in rural Alaska and scoring a 3,000-user contract from the state government.

That contract, previously served by ACS, resulted in 6,000-user swing between the two companies. As of the end of the third quarter, ACS had 123,483 wireless customers compared to GCI's 136,500. AT&T has an estimated 250,000 users in the state.

As it shifted toward a strategy of pursuing a higher-quality customer base, ACS also cut off about 4,500 delinquent customers during the first quarter of 2010.

"Getting that line of business back on track is a big goal," Vadapalli said. "The way I see it is a really continued focus on service — the quality and reliability of our network — and innovation in the market. We have to be agile, we have to be fast and we have to take great care of our customers. There is no shortcut to winning market share back. That will be a big focus for me."

Boosted by Google's Android smartphone platform, ACS saw quality gains in average revenue per user, or ARPU, both in the wireless and wireless data segments in 2010. During the third quarter, ARPU for wireless increased by about $3 per month, to $69.91, compared to the second quarter.

Wireless data use increased by $1 per month, or 10 percent, in the same period to $11.73. Between 2009 and 2010, Vadapalli said data ARPU increased by 50 percent and Android smartphone sales doubled. Android customers accounted for 30 percent of ACS customers in the third quarter compared to 14 percent a year earlier.

"The quality of wireless revenue is reflected in those statistics and this is really indicative of where the wireless world is headed — mobile data, high-speed data — and we are in the center of that growth there," he said.

The Android platform held the top spot in global sales during the last six months of 2010, with 43 percent of smartphone sales compared to 26 percent for the Apple iPhone and 20 percent for the Research in Motion Blackberry, according to Nielsen. ACS also is selling products such as the MiFi, a portable wireless hotspot device.

The increased penetration of Android platform phones helped ACS reduce "churn," or lost customers in 2010, and Vadapalli expects the global trend toward Android to be no different in Alaska.

"Between (Android and MiFi), we've created a very credible competitive environment for the iPhone," he said. "To us, it's a very promising sign going forward."

ACS will release its 2010 results in March, and it's expected that gross revenue will be down from 2009. Third quarter revenue was $89.8 million in 2010 compared to $91.9 million in 2009.

Through three quarters, gross operating revenue was $256.7 million in 2010 compared to $263.1 million in 2009.

Debt service and a $29.7 million non-cash write-down in the second quarter related to the purchase of Crest Communication Corp. masked the operating gains made during the same period.

Although operating revenue was down in the third quarter, operating income after expenses was up, from $10.2 million in 2009 to $14.8 million in 2010.

The $4.6 million year-over-year gain in third quarter operations reversed a deficit in that column for the year. Operating income through three quarters was $37.6 million in 2010 versus $34.6 million in 2009.

The decline in third quarter revenue narrowed to 1.4 percent versus a 4.17 percent decline year-over-year in the first quarter.

The non-cash write-down to reflect potential liabilities came after the IRS filed a notice of proposed adjustment, or NOPA, April 19, 2010, for Crest's 2006, 2007 and 2008 tax years. The IRS disputes Crest's characterization of the acquisition of several bankrupt companies in 2002.

Crest classified certain cash advancements from the previous major stockholder to the subsidiaries during the bankruptcy as equity and the IRS asserts that Crest should have reported the cancellation of debt as additional income.

ACS, which purchased Crest for $70 million in 2008, and the former owners are contesting both the amounts proposed by the IRS and the classification of payments as income versus equity.

In its third-quarter report, ACS stated that it expects to prevail on errors in the proposed adjustment, but is uncertain whether it will win on the underlying debt versus equity issue.

ACS is protected against potential tax liability related to the IRS audit of Crest based on the purchase agreement, which holds the previous owners responsible for any taxes owed.

However, the third quarter report notes that if it cannot enforce the indemnification agreement or if the previously reported value of Crest subsidiaries change in a way that won't allow for mitigating tax liability, ACS could see a hit to its cash flow and overall financial position.

The Crest acquisition accounts for one of two ACS high-capacity, fiber optic underwater cables connecting Alaska to the Lower 48. The capability is at the heart of ACS' growth strategy in the enterprise, or large customer, segment.

ACS won a contract with the University of Alaska system to back up its entire system in Hillsboro, Ore., where it has converted a building to a data storage facility to host Alaska business services and provide disaster recovery.

In August 2010, ACS also acquired a 49 percent interest in TekMate for $2.06 million. TekMate was honored in January as the 2010 Level Platforms Partner Comeback of the Year after doubling its business since December 2009.

TekMate, selected by Level Platforms from more than 3,000 candidates, is Alaska's largest privately owned information technology services provider and has made ACS a one-stop shop for IT needs.

Beyond growth opportunities in the state, Vadapalli said ACS will expand with its customers into the Lower 48. ACS is serving a large in-state customer that recently made acquisitions in Washington and California, and Alaska's fiber optic connections to the Lower 48 make potential customers out of banks, seafood operations, Alaska Native corporations, design firms and give small businesses access to the global marketplace.

"When I talk to businesses, it's given me a distinct advantage in the market and really sets us apart in being able to offer an integrated solution," he said. "What we're focused on is how we create value for customers, more than a customer segment itself.

"Regardless of which segment we're chasing, we have to differentiate ourselves and we have to create value. Wireless data and the full suite of IT infrastructure is really setting us apart. That's how I see growth for us over the next several years."