FairPoint says data centers could produce $3-4M in revenues

FairPoint may still be a nascent player in the data center market, but it's one that will help put its existing central office (CO) facilities to better use while furthering its bond with its business customers.

Speaking to investors during the second quarter earnings call, Paul Sunu, CEO of FairPoint, said that the company sees the data center business, mainly built into repurposed COs, initially producing between $3 and $4 million in revenues.

"The data center opportunity right now with what we have with the 4,000-8,000 square feet that's available to us is somewhere between $3-4 million range currently and with expansion maybe that number can go up," Sunu said.

However, Sunu cautioned that FairPoint is "taking this thing slowly because we don't want to have stranded assets."

While he does not expect data center services to become an immediate large revenue source, Sunu said the services will potentially open up new conversations about using high speed optical and Ethernet circuits to connect their own locations and to connect to other data center locations.   

"This is not in and of itself going to make a big splash on our top line, but what it does do is gives us a lot more intelligence and makes our organization smarter," Sunu said. "Because of the fact that we're operating these and are talking to our customers about these, we get to understand what they are looking for and also gets us into conversations about circuits that they were looking at that we might not have had conversations with before."

To date, the service provider has opened two data centers -- one in Laconia, N.H., and its more recent opening in downtown Manchester.

Customers can use the Manchester data center or its Laconia facility as primary or secondary data center sites or as part of a comprehensive disaster recovery strategy.

Besides growing its new data center business segment, the telco continues to find fortunes with selling data services, particularly Ethernet, to its business and wholesale carrier customers.

Ethernet continued to be a factor in FairPoint's second quarter 2015 earnings mix, contributing nearly $23.5 million of revenue or 11 percent of total revenue, up from $20.9 million or 9.3 percent of total revenue a year ago, as retail and wholesale Ethernet circuits grew 28 percent year-over-year. FairPoint expects growth in its Ethernet products to continue based on demand from customers like regional banks, healthcare networks and wireless carriers.

During the quarter, the service provider added 205 retail and 398 wholesale Ethernet circuits, ending the quarter with a total of 6,036 and 7,696 circuits. Overall business and wholesale lines  declined slightly sequentially to 278,302 and 51,741.

In the business segment, FairPoint continues to see adoption of new products like its Hosted PBX service and E-911 systems. It began the installation of a 1,250 hosted PBX solution in New Hampshire and is deploying a next-gen E-911 system for the state of Vermont.

The telco continues to devote efforts to growing its broadband base. Driven by customer speed upgrades and price increases, which more than offset a net decline in total subscribers, broadband and other data revenues grew $1 million from the first quarter of 2015. FairPoint said that it felt encouraged about its broadband growth prospects as it saw subscriber counts increase in June compared to May.

Data and Internet services revenue rose $1.2 million due to seasonal reconnects, rate increases and speed upgrades partially offset by broadband subscriber losses.

From an overall financial perspective, FairPoint reported net income $40.3 million in the second quarter of 2015 compared to a net loss of $45.2 million in the first quarter of 2015. The telco said the change was "primarily due to a decrease in operating expenses, excluding depreciation and amortization as described above, and, to a lesser degree, an income tax benefit in the second quarter compared to income tax expense in the first quarter."

While FairPoint's second quarter revenue increased $0.1 million on a sequential basis to $214.1 million, it was down year-over-year from $225.6 million in the same period a year ago.

For full year 2015, the telco has forecast it will generate $115 million to $125 million of Unlevered Free Cash Flow adjusted for Estimated Avoided Costs in the first quarter. The lower end of this guidance range has increased from $105 million in prior guidance.

Shares of FairPoint were listed at $16.79, down 14 cents, or 0.83 percent in Wednesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special report: Wireline telecom earnings in the second quarter of 2015

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