GCI Liberty (GLIBK.US): Alaskan Broadband Monopolist Poised For Dislocation
Upcoming Malone spin looks to offer significant opportunity.
For details on Liberty Broadband, please see my February 2025 deep dive here:
Introduction
Liberty Broadband is spinning off its wholly-owned subsidiary, GCI Liberty, on July 14th as part of its upcoming merger with Charter. Distributions will be made at 0.20 shares of GLIB for every share of LBRD (regardless of share class). The record date is June 30 at 5:00 PM. GCI is a difficult-to-research, odd-ball asset due to its complex M&A history, unique exposure to the Alaskan broadband market, and significant reliance on government subsidy programs. Complexity aside, we believe GCI’s assets are extraordinarily valuable given their quasi-monopoly status in the Alaskan market, particularly in its rural geographies.
The making of a heavily dislocated spin is all in place as Malone and company appear to be actively working to ensure GCI floats at a low initial price. Disclosures have been weak, investor communication has been poor, and transaction complexity is high, all of which we believe is a deliberate attempt to dislocate the spin for tax purposes.
GCI’s Complex History
GCI has a complex history with John Malone and Alaska. Founded in 1979 by current CEO Ron Duncan under Malone’s TCI sponsorship, GCI was the first mover in the Alaskan cable market. GCI first made its debut in the public sphere in 1987, when TCI spun the entity under the GNCMA ticker. GCI (at that time General Communications Inc.) operated as a standalone for several decades following the spin, accruing greater and greater market share as the dominant cable company in the state by a wide margin.
In 2018, Malone’s Liberty Interactive acquired GCI, merged the company with a series of other ventures (of which GCI was the largest), and rebranded the entity as Liberty GCI. This consolidation was short-lived, as in 2020, Liberty reformulated its media asset base again by merging its broadband assets (primarily its ~1/3rd stake in Charter) and GCI into a single entity, Liberty Broadband. Somewhat ironically, five years later, Malone is now reissuing GCI Liberty under the same ticker as before, albeit now on a much simpler asset base.
Malone’s fingerprints on the business have created a difficult-to-research entity. The pre-2018 GCI structure was somewhat convoluted, and the original filings can be challenging to locate. Following 2018, the focus shifted away from GCI, resulting in a decrease in disclosures and a decline in analyst attention. In 2020, GCI became virtually irrelevant in Liberty Broadband, given that its value was dwarfed by that of the Charter shares.
Company Overview
Setting aside GCI’s complex merger history, the company has operationally done wonders for Alaskan infrastructure over the last four decades. Since its founding in the late 70s, GCI has laid significant subsea cable infrastructure, scaled the first 4G and now 5G wireless business in the state, and built a massive combined microwave and fiber optic terrestrial network called TERRA, which connected many rural villages in Alaska that previously had no broadband internet. Today, GCI is the clear leader in broadband with a robust 50%+ market share.
GCI’s crown jewel asset is the TERRA network, a six-year terrestrial infrastructure project completed in 2011 that provides broadband access to the thousands of rural homes across the state. TERRA was an extremely complex project due to the unique issues faced in the Alaskan market, including the need to traverse a vast landmass with a limited critical infrastructure. Much of TERRA had to be constructed in areas with no roads, often accessible only by air. Maintaining GCI’s extensive network is laborious, as Alaska’s harsh environment can easily damage critical infrastructure, often in difficult-to-access areas. As an example of the difficulty of maintaining this infrastructure, GCI spokespersons have mentioned that some of the TERRA network is off the power grid and requires routine helicopter flights to refuel diesel generators that keep telco towers operating.
Challenges in Alaska render the geography not only unique but also fundamentally unattractive to operate in. Outside of Anchorage, Alaska, is sparsely populated, inhabited mainly by scattered villages and research stations with populations <200 people per community. Population density in the Lower 48 is ~9.5 persons / sq mi, while in Alaska, that figure is <1.0x. The high cost of operating broadband infrastructure in Alaska means that the incentive for new competitors to enter the geography is extraordinarily low. Barriers to entry for a second major broadband player in Alaska are virtually insurmountable, given the lack of economic viability for the projects.
Although GCI may operate as a rural monopoly in the state, the high cost of operating in Alaska dictates that GCI itself cannot earn an economic return without significant government subsidies. Alaska is a significant beneficiary of the FCC’s internet access subsidy program, the Universal Service Fund (USF), which accounts for a substantial portion of GCI’s revenues. In FY24, GCI received 42% of its revenue from USF subsidies.
Given Alaska’s unique market, GCI’s revenue composition is also differentiated from that of its peers. The majority (53%) of GCI’s revenues are Business related with the remainder focused on consumers. Business revenues focus on telehealth, e-learning, and government/research outposts. Unlike lower 48 broadband providers, Business margins are higher than Consumer margins, particularly in rural areas. Business revenues are also majority subsidy-related, with up to 90% of the cost of the broadband services subsidized for healthcare and education-related businesses.
Universal Service Fund (USF)
Central to the GCI thesis is an understanding of the Universal Service Program (USF) and its administration. The USF was first established under the Communications Act of 1932 as a means of subsidizing telephone service for low-income consumers and high-cost areas. The act defined telephone service as a “universal service” with a goal of providing this service to all Americans. The Communications Act delegated funding and administration of the program to the FCC. The FCC established a private entity called the Universal Service Administrative Company (USAC) to ultimately fund, administer, and distribute USF funds. USAC assesses funding needs and recommends a fee collected from telecommunications companies based on revenues received for voice services.
In 1996, the original Communications Act was substantially overhauled under the Telecommunications Act of 1996. This act expanded and formalized the definition of universal services to four key mechanisms: High-Cost Support, Low-Income Support, Rural Health Care Support (RHC), and Schools and Libraries Support (E-Rate), which remain the focus of the USF today. Universal service support was also expanded to include broadband internet. The USF is now a nearly $9bn program with about 50% of funds directed to subsidizing high-cost areas.
Alaska receives a disproportionate amount of RHC and E-Rate funds relative to its population (39% and 7% of total distributions, respectively). These funds are a lifeline to rural communities across the state, where the cost of unsubsidized broadband is prohibitively high at the same time that schools and clinics are often significantly under-resourced, requiring more distance learning and telehealth services than any other area in the country. GCI has established itself as a major supplier of rural broadband and, consequently, a significant beneficiary of USF funds. In 2024, Alaska received $587m in USF funds, c.72% of which accrued to GCI.
The USF has not been without controversy since its implementation. Although there tends to be bipartisan agreement that such subsidies are necessary, the extent to which they are needed and the method of funding them has become increasingly controversial. In 2023, a conservative activist group, Consumers’ Research, challenged the constitutionality of the USF in multiple circuit courts. The Sixth and Eleventh Circuits found the USF constitutional, while a surprise en banc Fifth Circuit decision found the funding unconstitutional in a split ruling. This led to an appeal to the Supreme Court, which was settled on Friday, June 27th, 2025, with the conservative SCOTUS finding the USF constitutional on all grounds.
While this eliminates the immediate overhang that may have troubled the spin, there is a very real need for USF reform that will likely take place in the next few years. The collection of USF funding is derived from a fee charged on voice services, which have been in structural decline for two decades (see chart above). Simultaneously, funding needs for the USF expanded from voice services to broadband, which has significantly grown the cost of supporting the USF since the ‘96 reforms.
By 2027, USF fees assessed on landline and long-distance services may account for as much as 50% of the service cost. By 2030, this figure is expected to be substantially higher. In other words, the FCC needs to either reduce USF spending or reformulate the cost base to more closely align it with the services subsidized by the fund.
Despite this situation, we believe USF funding is unlikely to be cut. The issue we see is not USF’s cost, but rather its funding mechanism. Reforming the funding mechanism appears straightforward: simply broaden the fee base to more closely align with the program’s cost structure, for example, by assessing a fee on broadband services going forward. Estimates indicate a 3 - 4% fee on broadband internet would cover USF funding without issue. The solution is parsimonious, and USF subsidies are crucial to low-income schools and rural life.
Competition
GCI is the elephant in the room by a significant margin in the Alaskan broadband market. GCI has significantly more infrastructure and experience operating in Alaska than any of its peers. In many rural villages, GCI’s services are the only available broadband connection. GCI’s competitors, such as Alaska Communications, generally are required to wholesale data from GCI to fill out portions of their middle-mile infrastructure, as GCI’s TERRA network is the only comprehensive terrestrial network in the state.
Unlike in the Lower 48, recent sources of competition are non-existent and non-economic in Alaska. Fiber overbuilding outside of Anchorage makes little sense, as the economics (already stretched in the contiguous United States) are untenable due to the high construction costs in Alaska. Fixed Wireless Access, a central flash point in U.S. broadband competition, is also non-existent in bandwidth-constrained Alaska. GCI controls the primary infrastructure throughout the state, which has given it a tremendous first mover advantage that appears nearly insurmountable for competitors at this point.
Some competition has arisen from new technologies. Specifically, low-earth orbit satellite (LEO) internet, such as Starlink, has introduced a semblance of fresh competition in the market and has certainly captured some market share at the margin over the last few years. While LEOs may appear to be a reasonable competitor, we believe it is unlikely that the product will gain substantial market share even in rural Alaska, given fundamental constraints on internet speed and reliability. Even if LEO internet becomes a viable consumer competitor to broadband-to-the-home, we expect that high-bandwidth business needs, such as telehealth, will remain largely unaddressable by the technology.
That said, Starlink has made some strides in the market in areas where no broadband internet option is available, and during recent outage periods when subsea cables have broken. We expect to see limited uptake on LEOs in the near future, but it will be crucial to keep an eye on the technology as it matures and potentially delivers greater speeds at lower prices.
In the wireless market, GCI faces stiffer competition. This market is consumer-oriented, and both Verizon and AT&T have made pushes into the state, with AT&T finding significant success. Tapping into consumer review websites, it appears users universally prefer AT&T for coverage, as coverage extends better outside of town centers, and cell service is in the Lower 48 without issue. GCI, on the other hand, offers a comparable product in urban environments at a significant discount to AT&T’s service.
GCI’s central selling point is its converged product offering (wireless + broadband + other services), which they sell at a bundle discount. Lower 48 peers, such as Charter and Comcast, have achieved great success with converged products, and we believe the substantial cost savings these bundles offer will help maintain a loyal wireless consumer base in major urban areas over time. Over the past five to ten years, this has proven to the true.
Transaction Summary
In typical Malone fashion, the GCI distribution is complex and highly engineered. We’ll spare readers the gruesome details and try to summarize the three key points.
Plan of Reorganization
Rather than spin GCI in the traditional sense, the company has opted for an opaque “plan of reorganization.” Optically, the spin transaction is executed identically to a regular-way spin; however, in the background, Liberty will undergo a significant restructuring of its corporate entity. The net result is a step-up in basis on GCI’s assets, which will act as a meaningful tax shield for the corporation going forward. Management stated this “could generate as much as $420 million in tax benefits” and that GCI “won’t be a cash taxpayer for quite some time.” Management has declined to comment further on the mechanics of this basis step-up and has not provided a typical pro-forma balance sheet in the S-1 filing.
Taxable Distribution
The plan of restructuring is not without drawbacks. Unlike most spins that are carefully structured to be tax-free events, this spin is explicitly taxable as a “boot”, i.e., an asset distribution made during a plan of reorganization. Boot taxation is exceptionally complicated, but management has guided shareholders towards treating GCI shares as qualified dividends and taxing them at a long-term capital gains rate, assuming they retain Liberty shares until the Charter merger. Based on my understanding of the S-1 disclosures, the disposal of Liberty shares prior to the Charter merger will result in taxation at the rate implied by the associated LBRD tax lot (e.g., long- or short-term, as usual). The value of the boot (GCI shares) will be equal to the average 20-day VWAP of the stock post-spin.
Insider incentives
One interesting dynamic that runs through the entire spin process is a distinct lack of communication on how the restructured entity will look. During the investor day, management stated, “…we do have some opportunity [for cost savings] within our SG&A…” but did not quantify the opportunities when asked. Similarly, guidance around capex was a bit confusing. The team was unwilling to quantify the stepped-up basis tax shield in detail and has been sparse in their description of how the step-up works. It speaks volumes to me that the GCI Investor Day was a 53-minute affair, titled 'Liberty Broadband Business Plan Update,' which provided virtually no new information to investors. For reference, a typical spin investor day is a full-day event that includes a strategy review and a presentation with over 100 slides.
In any special sit transaction, qualitative analysis of insider incentives is extremely important. In this case, we believe the qualitative element is painfully obvious: insiders are explicitly incentivized to spin GCI at the lowest possible price, given the boot tax treatment. Additionally, Malone famously uses options as a primary incentive for his management teams, and we expect that large option packages will be granted in the first month or two post-spin, based on the trading price. We think it's clear that Malone and company are under-disclosing on the reformulated entity explicitly to create a weak initial bid, effectively setting the table for opportunistic buying on our part.
Valuation
GCI is a mature, incumbent asset in a low-growth, but low-competition market. As such, we expect to see minimal year-over-year changes in net subscribers, minimal shifts in market share over time, and revenue growth roughly in line with inflation. We believe margins have some room to grow, given the increased focus on high-margin business data customers (such as healthcare, government, and education), and a reduction in low-margin video and voice subscribers, but margin accretion will be minimal.
GCI is officially shuttering its atrophying video business this year, which may create some revenue headwinds; however, video subscriber margins are ~zero, so the EBITDA loss should be minimal. Margins at GCI have averaged ~34% for the past decade, with some upward bias in recent years (driven by the pivot to business data). We expect 35% to be a reasonable average going forward.
The tricky aspect of valuing GCI is determining the correct multiple, as GCI has no peers and hasn’t traded independently for some time. Finding the appropriate EBITDA multiple requires us to review multiple sources1:
(1) Historic Precedent. GCI’s original ticker, GNCMA, traded at 5 - 6x EBITDA pre-2015. In 2015, GCI consolidated its wireless holdings in a $300m+ transaction with Alaska Comms. Post-transaction, GCI saw a multiple boost to 6.5x. Liberty purchased the company for 9x in 2018.
(2) Regional Comp. Publicly-traded Alaska Communications was GCI’s closest peer for many years. From 2000 to 2014, Alaska Comms traded at ~7x. Following the 2015 GCI wireless deal, Alaska Comms’ margins collapsed, resulting in a significant decline in multiples to 5.3x post-deal. In 2021, the company was taken private at a 5.3x multiple.
(3) Lower 48 Comps. Larger Lower 48 players have tended to trade at a premium to the Alaskan market. Peers2 trade at 7.5x median post-COVID or 8.5x pre-COVID. Given GCI’s size, growth prospects, and regulatory risks, we expect the stock to trade at a discount to its Lower 48 peers.
Putting this all together, we think 6.0x EBITDA should be a fair pricing for GCI. We are using LTM ~$1.0b revenue at a 35% margin to derive base EBITDA. Given that this is a somewhat hand-wavey valuation process, we’d like to see a substantial discount to this price before we would consider buying.
Risks:
Subsidy reductions. GCI is heavily reliant on USF subsidies, which were 42% of the company’s revenue in 2024. Although a recent Supreme Court challenge was rejected, ongoing issues with USF funding will likely require reform sooner rather than later.
Insider Misalignment. GCI has several governance red flags, including leases on private jets, a multi-share class structure, and low insider ownership, except for Malone himself. Typically, we would be more concerned about these issues, but in this case, we are willing to look past them due to Malone’s involvement.
Competition. The emergence of LEO satellites and Quintillion's subsea fiber optic buildout has introduced potential competitors that previously did not exist. While we view LEOs as a non-issue today, we can envision a world where satellite internet becomes a genuine competitor to consumer broadband.
Conclusion
We expect Liberty GCI to spin far too low, given the current trading dynamics in the Liberty Broadband spread, word on the street regarding spin pricing, and clear incentives for insiders to depress the stock upon issue. Furthermore, we anticipate significant technical selling in the month or months following the spin transaction as arbitrage traders unwind their positions and large-cap funds exit orphaned small-cap GCI.
Upon reviewing GCI’s assets, we are impressed by their competitive moat and cash-generating ability. We believe many investors may be overly focused on recent regulatory headlines, which we consider almost entirely a distraction. While USF reform is necessary, subsidies for Alaskan consumers, schools, and telehealth are crucial to the functioning of those rural communities, and we doubt substantial cuts will be made under any reform package. At its core, GCI is an underlevered, FCF-generating machine with a fantastic capital allocator sitting at the helm. We expect the stock to do well over time.
We’re eager to watch the when-issued market develop and hope to see some buying opportunities over the next few months.
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Disclaimer: The content on this website is for informational and educational purposes only. Nothing should be considered as investment advice or as a guarantee of profit. Please make sure to do your own due diligence. The opinions expressed are those of the author and are subject to change without notice.
Disclaimer: As of the time of writing, the author owns shares in the company described in this article. The author may purchase or dispose of these shares at any time without notice.
Given the lumpiness in cash flow cycles and mismatch between PP&E depreciation and useful life, we generally view EBITDA as the most suitable multiple for evaluating broadband companies.
We are defining the peer group as Charter, Comcast, AT&T, and Verizon.
You don't see smaller/regional players like $LUMN, $FYBR, $SHEN, $WOW, $CABO, $ATNI, $LICT as comps? Not that they dramatically change the picture, of course.
Thanks for flagginggg