Dear ACS Investor,
I am pleased to share with you, our investors, an
overview of the Company’s performance in 2003
and to highlight for you the direction set for ACS
for the coming years. In many respects, given the
number of signifi cant changes that occurred, 2003
started a new agenda and a transition for ACS. After
reviewing the events of 2003, I will describe how we
are positioning your Company for 2004 and beyond.
On October 6, 2003, I assumed the position of
President and CEO of Alaska Communications
Systems. I was attracted to ACS because of the
tremendous potential to create value for all of
our stakeholders given the Company’s full suite
of products and services. On January 1, 2004, my
role at ACS expanded to include Board Chair, as
Charles Robinson retired from over 45 years of
industry leadership. We thank him for his service
and his contributions to shaping the Company
and the Alaskan telecom market.
Both the industry and ACS continue to face
signifi cant challenges
to competition,
pricing, regulation and technology. I have led a
shift in focus at ACS away from the regulatory arena
and placed it squarely on the customers of today
related
Liane Pelletier
President, CEO, and Board Chair
and the future. This shift in focus on the customer
resulted in restructuring ACS to take advantage of
a re-energized workforce bolstered by the addition
of several new executives from inside and outside
Alaska. We also adjusted our service and product
offerings to meet the needs and expectations of our
marketplace. I sense a growing realization in both
Alaska and the investment community that ACS
has the product mix, fi nancial strength and business
strategies to distinguish us from our competitors.
WIRELESS INTERNET LOCAL LONG DISTANCE TELEVISION www.acsalaska.com
2003 HIGHLIGHTS
Looking back on 2003, the highlights included the sale
of the directory business for net proceeds of $155.3
million, the refi nancing of $382 million of our debt,
the termination of the State of Alaska contract and the
start of my leadership at ACS. As a result of these events,
we experienced some signifi cant fl uctuations in our
operating results, but have positioned the Company for
improved 2004 performance.
Our revenues for 2003 increased $5.3 million to $292.0
million from the $286.7 million we reported for 2002
adjusted for the sale of our directories business, the State
of Alaska contract revenue and previously deferred access
revenue. EBITDA for 2003 was $111.1 million compared
to $106.8 million for 2002, adjusted for the disposition
of our directories business, the State of Alaska contract
termination and certain other non-recurring revenues
and charges. The termination of our contract with the
State of Alaska, while resulting in signifi cant charges, has
removed a distraction from focusing our attention on
our core operations. The contract had also generated a
negative operating margin of approximately $6 million
for each of 2003 and 2002, which we do not expect to
burden our results going forward.
We were particularly pleased with the performance of
our wireless product during 2003, which saw a revenue
increase of $3.4 million, a subscriber increase of 6% year
over year to 87,000, and increased average revenue per
user. Additionally, we have increased our core Internet
revenue by approximately $4.6 million, or 36% year over
year, due in large part to our DSL service offerings and
other enhanced broadband services.
For a full discussion of our 2003 results, please read
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our
consolidated fi nancial statements and notes included in
the 10-K.
2004 OUTLOOK
Alaska
isolated
is a beautiful and geographically
market in which telecommunications play a vital role.
Telecommunications users in Alaska increasingly value
mobile services, high-speed data services, and the
convenience of doing business with a single provider.
ACS’s portfolio of owned local, long distance, internet and
wireless facilities, coupled with our relationship with the
satellite video provider, DISH, positions us well to serve
our customers’ needs.
Given the number of key changes throughout 2003, as
the fourth quarter came around, the ACS management
team took the opportunity to re-assess how to best utilize
our assets and distinguish the Company in the eyes of
all Alaskans. In short, the assessment drove a series of
substantial changes, the sum of which are no less than
transformational. Our game plan, however, is quite
simple.
The goal we set for ACS is to grow the number of loyal
customers. Loyal customers are those that stay with ACS,
those that buy more from ACS and those that refer ACS to
their family, their friends and their business associates.
The best strategy for ACS to achieve the goal of growing
loyal customers is to compete for them on an integrated
basis, leveraging all the Company’s owned assets and
weaving in other strategically valued elements like the
entertainment product from DISH. This integrated
strategy is a smart plan for ACS, for three key reasons.
One, it is differentiating; two, it satisfi es the customer
desire for convenience and value; and three, it should
deliver maximum return on assets as integrated service
allows for reduced acquisition cost, lowered service costs
and longer customer life.
Corporate Headquarters: Alaska Communications Systems Group, Inc. 600 Telephone Avenue, Anchorage, AK 99503 907.297.3000
Competing on an integrated basis will come in two stages
and will take two forms:
First, delivering a more seamless experience
(cid:127)
to the customer, from one-stop shopping
on the front end to all-in service at the
back end.
Second, interoperating the assets to create
fundamentally new services not available
on stand-alone platforms.
(cid:127)
Driven by the goal to provide a seamless customer
experience, we have dramatically
changed our
organizational structure and attracted new executive
leaders ready for the transformational task ahead.
Structurally, ACS has consolidated consumer sales and
service as well as business sales and service, so that there is
absolute clarity of focus, ownership and accountability for
the complete customer experience. ACS has also put all
its network functions together as it manages its networks
as if they were one and plans for new functionality that
is seamless across wired and wireless environments. From
sales to network, from advertising to product development,
from human resources management to fi nance, we have
One ACS, eliminating as many internal and external walls
and barriers as possible.
The clarity of ACS’s goal, strategy and experienced
management team motivate a dedicated workforce
throughout the state. For each of the areas of our
operation, ACS has reinvented itself. Our focus has been
on becoming easier to do business with, listening better
to our customers, innovating customer solutions, and
honoring the Alaskan market uniqueness while importing
best in class ideas from elsewhere.
As this letter goes to print, we continue to explore the
opportunity to recapitalize the Company through an initial
public offering of Income Deposit Securities (IDS). As
demonstrated by our IDS fi ling, and 2003’s successful sale
of our directories business and debt refi nancing activities,
we are constantly seeking extraordinary opportunities to
maximize investor value.
We have a work in progress, but momentum and
enthusiasm about our future. We are thankful for the
support from our communities, our employees, our
customers and you, our investors, and we look forward
to sharing the rewards of our plan with you.
The sources of growth for ACS playing offense in this
manner are clear.
Liane Pelletier
President, CEO, and Board Chair
(cid:127) We will win back the retail relationship
with local customers that previously chose
a competitor.
(cid:127) We will grow share in the Alaskan wireless
market – we are enabled by the Company’s
new CDMA network offering superior voice
quality and two speeds of mobile data; we see
tremendous opportunity through Alaska’s
implementation of wireless number portability.
(cid:127) We will earn more share of wallet from
each customer through bundling and
solutions selling.
www.acsalaska.com 2003 Shareholder Letter
BOARD CHAIR
Liane Pelletier
BOARD OF DIRECTORS
John M. Egan
Saul A. Fox
Byron I. Mallott
W. Dexter Paine, III
Patrick Pichette
Brian Rogers
Charles P. Sitkin
Wray T. Thorn
Corporate Headquarters: Alaska Communications Systems Group, Inc. 600 Telephone Avenue, Anchorage, AK 99503 907.297.3000
NASDAQ: ALSK Investors Web Address: www.alsk.com General Web Address: www.acsalaska.com