FairPoint Ethernet circuits saw Q3 growth, but pricing pressures continue to ramp

FairPoint Communications

FairPoint continues to see the fruits of customers transitioning from TDM to Ethernet, but the service provider is not immune to the reality that the commoditization of Ethernet services will continue to pressure average revenue per unit.

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Speaking to investors during the third quarter earnings call, Paul Sunu, CEO of FairPoint, said that as it faces more competition from CLECs and cable operators in the Ethernet services market, the telco has had to continually adjust service pricing.  

“From the Ethernet market, we continue to see good demand for the circuit, but there has been some downward pressure on pricing,” Sunu said. “As you know, five or six years ago when the product was kind of starting out and there was scarcity of the product, there was some premium pricing that got attached to that, and since then we've seen much more in terms of this being available throughout the market.”

Rosemary Cochran, principal of Vertical Systems Group, told FierceTelecom in an interview that Ethernet pricing has become more rational.  

“We’re seeing the beginning of price stabilization in the U.S., following years of aggressive Ethernet price compression,” Cochran said. “For new business, Ethernet providers are now reporting low single digit price declines.” 

Regardless of the outward market challenges, FairPoint continues to reap rewards from its customers’ Ethernet adoption. Ethernet services revenues came out to $24.9 million, or 12 percent of total revenue, as compared to $24.8 million, or 11.2 percent of total revenue, in the third quarter of 2015. 

Sunu said he expects to see new Ethernet additions to come from two sources: Customers migrating away from TDM and supporting a large business’ remote sites.

“There are certain levels of high capacity TDM circuits that's going to convert over into Ethernet, so there is a base that's going to continue to transfer over,” Sunu said. “There are also people that are coming on that see the necessity of connecting their headquarters to satellite offices that are within the state or within across the state line.”

FairPoint reported that business Ethernet circuits showed continued growth, up 9.5 percent year-over-year and 2.0 percent from the second quarter, to a total of 15,444 circuits. 

In order to maintain its competitive stance with its business customers, FairPoint has been introducing a series of cloud and managed services offerings that could complement its Ethernet rollouts.

Some of those products include its recently announced managed Wi-Fi offering and Cloud Contact Center application. While these services don’t necessarily require an Ethernet connection, they are certainly additive products that could complement an Ethernet customer connection. They could also make a customer stickier and help a business customer save money.

Targeting its Hosted PBX and SIP trunking customer base, the Cloud Contact Center application is aimed at helping to reduce capital for business by allowing customers to get contact center capabilities without the expense and maintenance of an on-premises solution. Likewise, the managed Wi-Fi offering provides not only initial installation of the Wi-Fi access points, but also 24x7 monitoring of the Wi-Fi switch and network.

“What we are doing is what we've talked about before – just the importance of being able to develop product and services that can align with our ability to place these large pipes in for customers,” Sunu said. “And having upgraded the technology team, we now have the ability to slice in it products and services that get tandem well with the circuit so that we can continue to keep the revenue buoyancy from customers and bring in new customers.”