FairPoint's Sunu: 1 Gbps won't turn around broadband subscriber growth

FairPoint took the broadband industry's cue to enter into the 1 Gbps race by launching its own residential service in December. But the telco knows these premium speed services will only appeal to a small part of its customer base.

Speaking to investors during the fourth quarter 2015 earnings call, CEO Paul Sunu said that while FairPoint wants to have such speeds available, initial take rates are minimal.

"We do offer high bandwidth availability in our regions, but what we're finding is people are yet to take those things, and that may be cost driven or it may be market or awareness driven," Sunu said. "In terms of 1 Gbps, we think that's a nice mark to be able to do but I am not sure from a residential point of view that it is a necessary component of increasing subscriber growth."

Nevertheless, introducing 1 Gbps is part of a broader effort by FairPoint to create new foundation to set future broadband growth.

Similar to CenturyLink, FairPoint also implemented new credit policies in order to weed out subscribers that sign up and don't pay for service -- an action the telco says will set a foundation for future broadband growth.

"One of the things we have been able to demonstrate to the market is we look to do substitutive changes and meaningful changes that's going to have impact to our operations over time," Sunu said. "We're not looking to increase subscriber for subscriber numbers and we want to make sure that these things stay with us so part of what we're doing is raising the credit quality of our customers and looking to make sure we're not bringing people on that are chasing the next introductory offer."

Overall data and Internet services revenue decreased $1.1 million due to broadband subscriber losses and seasonal subscriber disconnects. 

As of the end of the fourth quarter, FairPoint had a total of 311,130 broadband subscribers, down from the 319,915 it had in the same period a year ago.

The service provider also continued to see growing pains in the business segment as more of its customers convert from TDM-based service to IP-based Ethernet.

In the business market, Ethernet continued to be the star performer, contributing $24.8 million or 11.8 percent of total revenue, up from $21.8 million or 10 percent of total revenue a year ago.

Ethernet circuits grew 15 percent year-over-year. FairPoint said growth in the company's Ethernet products is expected to continue based on demand from customers like regional banks, healthcare networks and wireless carriers.

The service provider ended the quarter with a total of 14,507 Ethernet circuits, up from 12,614 a year ago.

Despite the gains in Ethernet, FairPoint's access revenue declined $2.2 million primarily due to the continued loss and conversion of legacy transport circuits to fiber-based Ethernet services.

"We know that over time that the business segment is going to convert to Ethernet, which is more efficient for us to manage but more cost effective for our customers," Sunu said. "The thing is we want to make sure we stay close to our customers and we know when they are ready to move so we can provide the circuits they're looking for."

From an overall financial perspective, FairPoint reported fourth quarter 2015 revenue of $209.8 million, down $11.8 million. The service provider attributed the decline to an anticipated $4.8 million reduction in regulatory funding revenue as well as additional quarterly seasonality in revenue. 

Looking toward the rest of 2016, the company expects to generate $105 million to $120 million of unlevered free cash flow.

Shares of FairPoint were listed at $15.18, down 26 cents, or 1.68 percent in Wednesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Earnings report: From Adtran to Zayo: Tracking wireline earnings in Q4 2015

Related articles:
FairPoint's Tomae to step down as part of company-wide reorganization
FairPoint eyes Maine, Vermont as next data center targets
FairPoint's quality of service settlement gets Vermont's approval
FairPoint lights up 1 Gbps service for Portsmouth, N.H. customers
FairPoint's Ethernet, IP services growth offset voice declines, hints at M&A possibilities

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