EarthLink finds dark fiber demand from content companies, enterprises

EarthLink struggled with wholesale business revenue in the first quarter, but it is finding growing interest in its dark fiber services.

Joe Eazor, CEO and president of EarthLink, said during the first-quarter earnings call that the company has been seeing growing interest in dark and lit fiber, particularly from enterprises and other carriers. "We've had some success commercially selling dark fiber routes and will continue to pursue those," Eazor said. 

Eazor added that it is seeing equal demand for both dark and lit fiber solutions from a mix of carriers on a route-by-route basis.

"We're seeing good market traction for both dark and lit fiber services so people wanting to just buy transport services from us on the lit fiber side and enterprises and other companies looking to lease dark routes," he said.

Complementing its dark fiber business services, the service provider introduced a new wholesale product in March that can deliver bandwidth increments of 500 Gbps, with the ability to scale up to multiple Terabits as demand dictates. The service provider has been touting this product to content provider customers that were requesting dark fiber solutions or an equivalent product.

Despite the gains it's seeing in dark and lit fiber services, overall wholesale revenues declined 10 percent to $33 million. The company said that the decline includes a $0.8 million unfavorable settlement charge.

"The wholesale segment was negatively impacted by a settlement that was favorable to the company overall, but reduced wholesale revenue by $800,000," said Louis Alterman, EVP and CFO of EarthLink. "These settlements happen from time to time and create some lumpiness in revenue."

Alterman added that despite the first-quarter wholesale revenue decline, "we still continue to see very strong demand for transport services and our bookings were in the first quarter up by a little over 50 percent compared to our average quarterly bookings from last year."

When asked about selling off network assets to other companies, Eazor said it is seeing interest in a mix of dark fiber and other solutions.

"In thinking about asset sales, it's clear that there's demand for a broader range of assets beyond just the dark fiber," Eazor said. "We're being good stewards of our assets in making sure whatever we do will maximize the value to the company, but beyond that I can't comment further at this time."

One of the best performing units for EarthLink was managed services, where revenues jumped 11 percent year-over-year to $52 million. The service provider said that it continues to see strong demand for managed network service products.

In the managed services space, EarthLink introduced a new Managed Security Monitoring Service and Secure Storefront, and its cloud exchange solution. With the cloud exchange solution, EarthLink is building direct connections to other cloud providers into its network while giving customers the ability to turn up and turn down cloud services.

"We're creating a product and service portfolio that builds on our existing strength and positions our EarthLink as a leader in managed services in the cloud world," said Eazor. "The cloud world can be exemplified by the proliferation of mobile devices on one end, the always connected consumer and customer in the middle, and then on the other end the nearly unbounded opportunities for companies to leverage the cloud with a wide set of options for software as a service and infrastructure as a service options."

While managed services are becoming a bigger element of what it sells to business customers, overall business services revenues declined by 3.3 percent year-over-year from the first quarter 2014. However, the decline was an improvement over the 4.2 year-over-year decline reported in the fourth quarter of 2014.

Business Services and total company revenue during the first quarter of 2015 were aided by seasonal pricing actions implemented during the quarter and a $2.1 million favorable settlement. A key focus going forward for EarthLink will be on shifting focus away from low-margin revenue streams.

Finally, in the CLEC business, revenues declined 6 percent year-over-year to $141 million. The company said that a favorable settlement added $2.9 million in revenue to the retail unit and that it's working to increase segment margins. Part of that included reducing last mile access costs to deliver services to small and medium-sized business customers.

EarthLink's first-quarter total revenues were $282.4 million, down 5 percent year-over-year. EarthLink said these results are an improvement compared to the 5.7 percent year-over-year decline the company reported in the fourth quarter of 2014.

For the year 2015, the service provider has forecast revenues to come in between the range of $1.06 billion to $1.07 billion.

Shares of EarthLink were listed at $4.85, up 5 cents or 1.04 percent, in Tuesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special Report: Wireline telecom earnings in the first quarter of 2015

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