Net revenue at Towerstream grew 31.7% to $2.08 million in the first quarter of 2008 when compared to the first quarter of 2007, while net loss widened to $3.61 million when compared to $1.64 million in the same period last year. Churn rate (customer discontinuing service) remained a low 1.35% when compared to 2.03% in Q4 2007 and 1.27% in Q1 2007. Beyond revenue growth, I think the most encouraging sign is that ARPU (average revenue per customer) for new customers increased to $842 when compared to $767 in the previous quarter. Gross margins decreased to 53.1% when compared to 58.1% in the previous quarter due to expansion into new markets. However, the drop in prices of WiMax equipment and economies of scale should help the company improve its gross margins i n the future.
The Telecommunications Act of 1996 created a uniform national law that allowed new telecom companies called Competitive Local Exchange Carriers (CLECs) to compete against the incumbent baby bells like Verizon (VZ) and SBC Communications, by giving these new telecom companies access to the "last mile" and the ability to resell the networks of the baby bells. This law led to a slew of new telecom startups like Covad and Allegiance Telecom, as well as spurred growth at companies like XO Communications and McLeod USA. After the crash of the dot com bubble and the ensuing "telecom nuclear winter" that resulted from the capacity hangover of the late 90s, most of these CLECs went bankrupt.
The problems that plagued the CLECs were not just limited to the huge debt loads some of these companies acquired in the quest to build capacity that would support the expected bandwidth hungry applications, but also extended to issues around their interaction with the incumbent telecom companies. For example, if you ran into an issue with your Covad T1 internet connection, the problem could be at your physical location (has to be serviced by the baby bell telecom), at Covad's end or at AT&T's end.