FairPoint's Sunu: Charter-Time Warner Cable deal won't affect broadband growth

FairPoint Communications isn't afraid of Charter Communications' (NASDAQ: CHTR) pending acquisition of Time Warner Cable (NYSE: TWC), a cable MSO that overlaps with the telco in a number of Northern New England states and other territories.  

Speaking to investors during its first quarter earnings call, Paul Sunu, CEO of FairPoint, said that he does not see thedeal having a major effect on how it delivers and markets broadband.

"We compete pretty much with Time Warner Cable and Comcast in our regions," Sunu said. "With the merger going on we don't really expect that to have much difference, but I did note that one of the merger conditions is that they would be precluded from doing any kinds of data caps."

Sunu added that "from our perspective we look at it from a competitive point of view, but for us we're in a monitoring mode and making sure we can counterpunch accordingly."

During the first quarter, FairPoint saw broadband grow slightly with the addition of 193 new subscribers to end the period with a total of 311,323 subscribers. However, overall broadband subscribers were down year-over-year from 316,640 in the same period a year ago.

Regardless of the near-term slowdown, FairPoint reported that data and internet services revenue increased $1.3 million as speed upgrades and price increases on broadband products more than fully offset subscriber declines. 

The company said that a renewed focus on highlighting network investments to improve available broadband speeds as well as the company's strong focus on customer service will drive further growth over time.

From a broader service provider perspective, a key focus will be on extending its fiber network that has been initially used to address its business customers to more residential customers. Leveraging the FTTH assets it gained from the Verizon (NYSE: VZ) acquisition in 2008, the service provider began offering a 1 Gbps service targeting Portsmouth, N.H., users in November. The telco also started offering a 150/75 Mbps tier.

"The way we view broadband subscription on the residential side is it's about network, it's about improving our service, and from a marketing point of view it's about understanding our demographics," Sunu said. "We have a fiber-rich network and we're leveraging that network to deliver high bandwidth needs for our businesses and now we're going to pivot and address that from a residential point of view."

FairPoint is also making investments in its copper-based network. These included  construction related to meeting CAF-II commitments as well as network improvements in various states to provide up to 50 Mbps of speed.

Between February and April, FairPoint made last mile upgrades to improve speeds in Pennsylvania, Virginia and Washington state. Today, FairPoint has 1.3 million copper loops that can support 7 Mbps, while 800,000 loops can support 15 Mbps.

"We're looking to see how we can get customers to take higher speeds and take advantage of the speeds we can provide for them," Sunu said. "We have done some studies where we're finding that about half of our market opportunities for broadband growth are in areas with relatively low competition."

On the business side, Ethernet services contributed $23.6 million or 11.4 percent of total revenue, up from $22.9 million or 10.7 percent of total revenue in the first quarter of 2015, as Ethernet circuits grew 13.2 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.

However, per the industry-wide trend access revenue declined $2.6 million due to the loss and conversion of legacy transport circuits to Ethernet.  The service provider said that impact was partially offset by an increase in wholesale Ethernet revenue, as a higher number of circuits more than offset the impact of the renewal of certain expiring long-term Ethernet contracts and lower service quality credits.

From an overall financial perspective, FairPoint's total revenue declined $3 million during the first quarter of 2016 to $206.8 million. 

Growth revenue decreased by $1 million, or 1.6 percent, primarily due to the renewal of certain expiring long-term Ethernet contracts partially offset by Ethernet circuit growth as well as increases in broadband and hosted and advanced services revenue.

For more:
- see the earnings release

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