FairPoint’s CAF-II builds could reduce churn, increase broadband growth

FairPoint may not actually see the benefits from Connect America Fund Phase II builds in its more remote areas until the end of the year, but the telco expects these network investments will help it return to stable growth.

In August 2015, FairPoint accepted $37.4 million in CAF-II funding, an amount that will enable the telco to build network infrastructure to deliver 10/1 Mbps broadband services to nearly 105,000 locations in 14 states. At that time the service provider declined offers for its service areas in Colorado and Kansas. In those two states, FairPoint said it will continue to make investments in its network while evaluating the FCC's competitive bidding process for funds.

Jefferies noted during a recent meeting with FairPoint’s new CFO Karen Turner that through “CAF-II builds in new markets, and churn reduction efforts, the company expects to see stability in growth while minimizing pressures in legacy revenue streams.”

Dealing with legacy declines is an ongoing reality for FairPoint and other traditional telcos.

FairPoint reported in the second quarter that data and internet services revenue was up $1.7 million as speed upgrades and price increases on broadband products more than fully offset subscriber declines. However, FairPoint’s second quarter revenues were $206.6 million for the quarter and $413.4 million year-to-date, down year-over-year from the $214.1 million in the same quarter a year ago.

By making these investments in areas where competition is minimal, FairPoint could reduce churn as higher speeds are allowing for upgrade and retention initiatives.

While offering 10 Mbps services to specific underserved and unserved communities is the priority, FairPoint could potentially improve speeds for other residential and business customers along the route.

Driving broadband growth is clearly an issue for FairPoint. Following a downturn related to labor strike in 2015, FairPoint reported during its second quarter earnings call that broadband revenues were $34.8 million, up year-over-year from $33.7 million in the same period a year ago. The service provider ended the quarter with a total of 311,400 broadband customers.

Outside of the planned CAF-II broadband expansion areas, FairPoint continued to make upgrades to its existing last mile network facilities in its Northern New England and New York territories, enabling it to expand broadband in Maine, New York State, and Vermont. In Maine, the telco upgraded its COs in 13 towns, enabling it to bring faster broadband speed to over 32,450 locations, for example.

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
FairPoint won't see benefits of broadband sub adds from CAF II program until end of 2016