FairPoint's Ethernet circuits grow 48.3% in Q2, contribute $20.9M in revenue

FairPoint Communications' growing Ethernet service base continued to be a factor in the second quarter, contributing $20.9 million of revenue, or 9.3 percent of total revenue, up from $15.5 million in the second quarter of 2013 as retail and wholesale Ethernet circuits grew 48.3 percent year-over-year. 

Ethernet and broadband services continued to be a major draw for new and existing customers and were a contributor to the telco's overall data and Internet services revenue base, which grew 10.1 percent to $44.1 million. The company said this was its sixth consecutive quarter where data and Internet services revenue grew.

Looking forward, FairPoint expects growth in its Ethernet products to continue due to ongoing demand from its growing mix of retail and wholesale customers, including regional banks, healthcare networks and wireless operators.

In June, the New England Telehealth Consortium (NETC) completed the connection of its 250th site with FairPoint's 1 Gbps Carrier Ethernet service, for example. NETC is working with FairPoint to link healthcare facilities in northern New England to the NETC network.

"We see positive signs in the business including continued growth in Ethernet revenue and broadband subscribers and we expect rate increases implemented in the second quarter and the return of seasonal customers to help support second half revenue," said Paul H. Sunu, CEO of FairPoint, in the earnings release.

Besides Ethernet, the service provider has continued to make upgrades to its last mile network to extend broadband services to more residential and business customers. During the quarter, it added nearly 1,900 broadband subscribers, ending the quarter with a total of 333,421 customers. Broadband penetration rose 0.6 percent sequentially as penetration reached 39.3 percent of the telco's voice access lines at the end of June. 

FairPoint said it continues to see "strong interest in our broadband products." 

However, from an overall financial standpoint, revenue declined $5 million during the second quarter of 2014 to $225.6 million due to expected declines in its legacy voice and access business lines.

Voice service revenues declined $0.7 million to $94.8 million due to having fewer lines in service.

Despite the ongoing voice service revenue loss, the service provider narrowed its voice access line losses to 7.1 percent from 7.5 percent in the same period a year ago. It said the slower decline was driven by a reduction in the rate of loss in business and wholesale access lines.

Likewise, access revenue declined by $1.8 million to $75.1 million. FairPoint attributes the loss to the continued loss and wholesale customer conversion of legacy transport circuits offset by wholesale Ethernet growth. 

FairPoint is currently in a state of uncertainty as two of the company's collective bargaining agreements that cover much of its employees in northern New England expired on Aug. 2. Although it is operating without contracts, the service provider said it has contingency plans in place to ensure there will be no interruption to service.

Looking forward, the service provider expects to generate $100 million to $110 million of unlevered free cash flow. In addition, for fiscal 2014, adjusted EBITDA is expected to be approximately $260 million and capital expenditures are expected to be about $120 million. 

Shares of FairPoint were listed at $16.25, up $1.20 or 7.97 percent, at the end of Monday trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special report: Wireline telecom earnings in the second quarter of 2014

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