EarthLink to aggressively sell dark fiber to carriers, content companies

EarthLink's dark fiber business continues to be a bright star in its struggling wholesale business as more of its carrier and content provider company customers are showing interest in purchasing the service.

Speaking to investors during the second quarter earnings call, Joe Eazor, CEO of EarthLink, said that it continues to see good demand and sales traction for dark fiber in the carrier, enterprise and content provider segments.

"We are looking at leasing dark fiber routes to interested parties," Eazor said. "We have confidentiality agreements in some cases with people that are interested in or are buying dark fiber routes, but absolutely it's part of our strategy."

Eazor added that they are selling dark fiber route by route and are figuring out what the best strategy is.

"We are learning if that's the best way to monetize our asset as certain routes are much more valuable, which is the best way to protect our lit traffic," Eazor said. "The team is actively pursuing that and we're going to be much more aggressive about that going forward."

Despite the near-term losses it saw in its wholesale segment, Eazor said it is seeing an uptick in the overall wholesale service segment.   

What has been helping the service provider win more wholesale accounts is that its installation team has been able to turn up circuits quickly, a factor that it helping it build further credibility with carrier customers.

"We are seeing an increase with enterprise accounts within our transport services so think of large content providers and new technology companies that want to have their own higher network bandwidth," Eazor said. "We're also seeing good traction with traditional carrier customers as well so it's a team that's been focused on the transport side and we're seeing progress with carrier and enterprise customers."

In the broader business segment, EarthLink narrowed its revenue losses to 2.8 percent year-over-year from second quarter 2014. This was an improvement over the 3.3 percent year-over-year decline it reported in the first quarter of 2015.

Seasonal pricing actions and pricing actions that were implemented in the first quarter aided EarthLink's business services and total company second quarter revenue results.

Additionally, total company revenue included $1.6 million of favorable dispute settlements and reserve adjustments, which consisted of $1 million of revenue in the Business Services segment and $0.6 million of revenue in the Consumer Services segment. Business Services and total company revenue in the first quarter of 2015 included $2.1 million in favorable dispute settlements.

Within the business segment, retail service revenues were $194 million and wholesale revenues were $34 million, down from $197 and $38 million in the same period a year ago.

"As I mentioned last quarter our Q1 carrier transport bookings were up 50 percent compared to our average quarterly bookings last year," Eazor said. "In Q2 we accelerated our carrier transport bookings up another 32 percent over Q1, making this our best sales quarter in this business since the first quarter of 2013."

Managed services continue to be a bright growing spot for EarthLink, rising 8 percent year-over-year to $53 million. As it continues to see what it said is "strong market opportunity," the service provider is making changes to go-to-market model for it managed services line.

Eazor said that the introduction of enhanced managed service capabilities like managed security monitoring and PCI compliance helped it "win business in the quarter with households like Del Taco and Modell Sporting Goods."

From an overall financial perspective, the service provider reported total revenue of $283.7 million, down 4.6 percent year-over-year from the same period a year ago. The company said this was an improvement compared to the 5 year-over-year decline the company reported in the first quarter of 2015.

Despite the losses, EarthLink's results surpassed Wall Street analyst forecasts surveyed by Zacks who expect the company to report $270.7 million in the quarter.

EarthLink has forecast fiscal year 2015 revenues to be between the range of $1.07 billion to $1.09 billion.

Shares of EarthLink were trading at $7.42, up 8 cents or 1.09 percent on the Nasdaq stock exchange.

For more:
- see the earnings release
- listen to the earnings call (reg req.)
- Reuters has this article

Special report: Wireline telecom earnings in the second quarter of 2015

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