EarthLink's Alterman: It's important to protect our lit fiber business

EarthLink is seeing growing interest from a host of carriers and enterprises for its transport services, including dark fiber, but it does not want to enable one of its service provider competitors either.

Speaking to investors during its third-quarter earnings call, Louis Alterman, CFO of EarthLink, said that although it is not opposed to offering dark fiber, the opportunities are being pursued on a route-by-route basis. 

"It's important to us to protect our lit business, so you're not going to see us be too willing or eager to put the dark fiber in the hands of people that will compete against us," said Alterman during the earnings call, according to a Seeking Alpha transcript. "Enterprises are interested in transporting a lot of traffic and there's the doubling of their traffic is happening at a pre-rapid clip. So, we've got a couple of things out there where we're working route-by-route on dark fiber."

EarthLink's Carrier/ Transport revenues, which include mature telecom services sold to carriers as well as transport services sold to both enterprises and carriers, rose slightly to $34.2 million. EarthLink said its transport services include higher margins and are growing as looks to fulfill customer demands.

"This segment continues to benefit from the strong demand for transport services on our fiber network," Alterman said. "Increasingly we are able to sell the enterprises as opposed to just carriers who can benefit from the diversity of our routes."

But the Carrier/Transport division isn't without its issues. Similar to other service providers that have been in the transport business for a long period of time, EarthLink continues to see the legacy usage-based wholesale products it sells to carriers continue to drop every quarter.

"Carrier transport churn was less than expected in Q3," Alterman said. "We had a specific known churn event that was delayed until early Q4. The carrier transport segment still does produce a sizable portion of its revenues from mature, wholesale and usage-based products. Revenue from these products continues to decline, particularly as a result of regulatory driven rate decreases, which go into effect every July."

Alterman added because these usage-based wholesale products are low margin and have negative growth and it's is being less aggressive in selling and marketing these services.

"These products tend to be low margin and low actually negative growth," Alterman said. "So therefore we have deemphasized our sales efforts on these mature products and we are willing to tolerate more attrition in them. Near-term that offsets the top line growth or at least partially offsets the top line growth from our transport revenues. However, the trade-off in mix is a big part of our ongoing margin expansion and we believe clearly the right thing to do."

However compelling the Carrier/Transport business revenues were, EarthLink reported that total Business Services revenue was $217.1 million during the third quarter of 2015, a decline of 8.4 percent from the prior year quarter.

EarthLink reported varied results from its Enterprise/Mid-Market, Small Business segments. Enterprise/Mid-Market revenues were $110 million, down from 114 in the same period a year ago, while Small Business declined to $72.9 million.

Overall third-quarter 2015 total revenues were $270.9 million, down 9 percent from the prior year quarter.

For more:
- see the earnings release
- here's the earnings transcript (reg. req.)

Special report: Tracking wireline telecom earnings in Q3 2015

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