FairPoint eases TDM-to-IP Ethernet migration pain with hosted PBX, data center services

FairPoint Communications continues to see an uptick in its business customers migrating to Ethernet services, but like other telcos that have a legacy TDM-based business, this resulted in ongoing earnings growth pain in the second quarter as legacy access revenue declined $1.4 million.

CEO Paul Sunu told investors during its second quarter earnings call that while the carrier can’t control when its business customers transition, it is working to smooth that migration by offering other advanced services such as data center, hosted PBX, and professional installation services.

“Ethernet revenue and Ethernet circuit counts continued their growth in the quarter as we successfully offset customer conversions from older technologies hosted and advanced services revenue grew in the quarter as well,” Sunu said. “In addition, we turned out several new data center customers and the features and flexibility of our hosted PBX offering continued to appeal to the businesses.”

Ethernet continues to be a growing factor in FairPoint’s business revenue mix, a trend that continued into the second quarter.

FairPoint reported that Ethernet revenue was $24.9 million, up from $23.4 million in the same period a year ago. As of the end of the quarter, the service provider had a total of 15,137 Ethernet circuits, up 10 percent year-over-year.

Sunu noted that FairPoint’s sales team is increasing its Ethernet sales by signing up new customers and transitioning others. By being able to also offer hosted PBX and data center services the telco can stave off competitive threats from Comcast Business, for example. 

“The way in which we are countering that is with advanced services,” Sunu said. “We think that having those services is critical, because our customers are looking for monitoring services and they are looking to make sure that they are having the latest tools and flexibility to manage their circuits.”

FairPoint is hardly alone. Larger telcos like AT&T saw a similar trend in the second quarter as the telco’s strategic business services revenue driven by Ethernet and cloud rose $200 million. However, overall business revenues declined slightly to $17.6 million due to ongoing declines in TDM-based services.

Even with Ethernet in hand another key challenge for FairPoint is dealing with pricing pressure, particularly as Comcast Business continues to expand throughout the New England region.

Besides offering a suite of managed services, FairPoint has also been enhancing its installation capabilities. The telco recently purchased a Maine-based value-added reseller of unified communications, data networking and cabling infrastructure solutions, a deal that Sunu said allows it “to be more effective and efficient in completing work at customers’ premises.”

This acquisition will complement the telco’s launch of its construction services line last October. Initially created to address its wireless wholesale customers’ small cell buildouts, the division will also support structured cabling and inside wiring to accommodate a wholesale customer's installation of new or existing networks, user installs, campus wiring or wiring to support wireless access points. The reseller can support wireless network upgrades at existing FairPoint wireless access points or help a wholesale customer create new wireless access points.

Sunu said that having additional services like hosted PBX, network monitoring, and its installation services set will also enable it to ease the pricing pressure.

“We are seeing some troughs in Ethernet pricing and the way in which we are countering that is with advanced services,” Sunu said. “We think that having those services will be critical because our customers are looking for monitoring services and they are looking to make sure that they are having the latest tools and flexibilities to manage their circuit.”

While a key focus of FairPoint’s Ethernet growth is in Northern New England where it operates a 17,000 mile fiber network, the service provider has been building a foundation to expand its higher speed Ethernet and other IP-based services in other states such as New York and Oklahoma.

By having a larger fiber footprint, FairPoint could expand its Ethernet revenues by targeting a larger source of business customers that are looking to upgrade or would like an alternative service source for IP-based services.

“We’ve been edging out of our operating territory in the telecom group for a while,” Sunu said. “We recently initiated a strategy to extend our fiber reach and I am happy to report that early signs from this strategy are encouraging as we are seeing revenue generation opportunities in Oklahoma, Washington State and upper New York State areas.”

For more:
- read the Seeking Alpha earnings transcript (sub. req.)

Related articles:
FairPoint sees Q2 uptick in broadband subs, but overall growth remains slow
FairPoint upgrades broadband capabilities in 13 Maine towns, offers 25 Mbps for eligible customers
FairPoint names Karen Turner as new CFO, replacing Sabherwal
Maglan Capital asks FairPoint to consider sale of company, share buyback