FairPoint's Sunu says Q3 broadband losses reflect tighter credit requirements

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FairPoint has taken a page out of AT&T and CenturyLink’s playbook to attract more quality customers, but that shift has caused near-term churn in its third-quarter broadband results.

In the third quarter, FairPoint lost 1,893 broadband subscribers, ending the quarter with a total of 309,547 subscribers, down from 311,400.

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Paul Sunu, CEO of FairPoint, told investors during its third quarter earnings call that it has shifted its focus away from trying to simply scale broadband subscribers to attracting loyal customers.

“In the past, we were less selective and more open about credit quality as we sought to increase penetration,” Sunu said. “Today, our focus is more towards improving the quality of service and revenue so it’s not unreasonable to see disconnects as we seek to improve credit standards and reduce outstanding balances.”

Despite the near-term subscriber losses, Sunu said that these efforts will provide a number of future growth benefits.

“As with our initiative to improve service quality, we believe our effort to improve the quality of the subscriber base will over time stabilize our base of subscribers, reduce SG&A, and yield greater profitability.”

As a result of the broadband subscriber declines, FairPoint’s Data and Internet services revenue increased $1.3 million. That increase was driven by higher broadband revenue due to seasonal subscribers, rate increases and speed upgrades, and was partially offset by broadband subscriber declines.

FairPoint also saw expected drops in its residential voice line market. The number of residential voice lines declined 10.9 percent year-over-year and 3.0 percent from the second quarter to 377,403.  

Alternatively, FairPoint reported that business Ethernet circuits showed continued growth, up 9.5 percent year-over-year and 2.0 percent from the second quarter to 15,444. 

From an overall financial standpoint, FairPoint Communications reported $207.1 million, down from $221.6 million as price increases and broadband speed upgrades could not offset continued line losses and lower regulatory funding. Net income declined to $40.2 million from $53.1 million, as higher taxes offset higher operating income. 

FairPoint's capital expenditures increased slightly to $30.2 million from $28.2 million a year earlier, and higher pension contributions also led to a drop in free cash flow to $24.4 million, down from $33.1 million a year ago.