FairPoint's Q4 revenue driven by broadband, Ethernet services

FairPoint (Nasdaq: FRP) reported on Wednesday that revenue was $240 million, down from $242 million in Q3 2012, as gains in broadband and business-grade Ethernet were offset by ongoing declines in voice revenues and the impact of Hurricane Sandy.

As seen at other wireline-centric telcos, FairPoint's voice revenues declined sequentially to $108.4 million, while a decline in switched access minutes of use led to lower switched access revenue of $336 million.  

Likewise, special access revenue declined as customers migrated from legacy access products such as DS1, DS3, frame relay and private line to wholesale Ethernet-based products. Although Ethernet offers greater flexibility in terms of bandwidth, the service has lower average revenue per unit. 

The telco also saw an impact from Superstorm Sandy, which caused service interruption during Q4 in its Northern New England state territory and drove increases in wholesale service quality penalties of nearly $1 million. Overall, FairPoint estimated that costs associated with Hurricane Sandy were about $2 million.

Here's a breakdown of FairPoint's key operating metrics:

  • Voice Services: During the fourth quarter, FairPoint narrowed its voice access line losses to 7.8 percent, down from 8.4 percent in 2011. It said the line loss improvement was due to a slower rate of loss of business voice access lines, which declined 3.7 percent in 2012 as compared to 5.1 percent in 2011.
     
  • Broadband Services: Broadband services continued to be a growth factor for FairPoint in Q4 2012. Broadband subscribers grew 3.9 percent year-over-year and 1.2 percent sequentially. In 2012, FairPoint added over 12,000 broadband subscribers. New Hampshire was a big focus area for the telco's broadband expansion effort. At the end of last year, it estimated its broadband coverage in that state was about 94 percent.   
     
  • Business Services: FairPoint is seeing growing interest from new and existing business customers for its next-gen business and broadband services, particularly Ethernet, which contributed about $12 million of revenue in the fourth quarter of 2012, up from $7 million in Q4 2011. The growth of Ethernet drove up total data and Internet services revenue 13.1 percent year-over-year. In the earnings release, FairPoint said it expects growth in its Ethernet "to continue as regional banks, healthcare networks and wireless carriers transition away from legacy technologies like frame relay." Ethernet has also become a major component of its wireless backhaul drive. Having already signed contracts to more than 950 mobile towers on its fiber-based backhaul network, the telco said in January that it will have over 1,300 connections at the end of this year.

The service provider said it expects to generate $100 to $110 million of Unlevered Free Cash Flow in 2013. 

"In 2013, we expect to flatten our top line trend and, by year-end, start to grow revenue on a sequential quarterly basis," Paul H. Sunu, CEO of FairPoint, said in the earnings release. 

A key point of Sunu's strategy will center on driving business and broadband growth to offset ongoing residential voice revenue losses.   

Shares of FairPoint were listed at $8.38 on the Nasdaq stock exchange, down 4 cents, or 0.48 percent, at 4 p.m. on Wednesday.  

For more:
- see the earnings release

Earnings roundup: Wireline telecom earnings in the fourth quarter of 2012

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FairPoint brings E-LAN service to New Hampshire's Mount Washington Observatory
UPDATED: FairPoint to bring Ethernet backhaul to 1,300 New England towers
FairPoint Communications makes $10M prepayment on debt

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