FairPoint sees Q2 uptick in broadband subs, but overall growth remains slow

Paul Sunu, CEO of FairPoint(FairPoint Communications)

FairPoint is seeing positive effects from seasonal broadband connections as the service provider reported a slight rise in subscriber growth during the quarter, signaling that it may be reversing a long period of customer churn.

Although the service provider’s broadband subscriber numbers were down year-over-year, the service provider appears to be reversing the downward trend as it ended the quarter with a total of 311,400 broadband customers.

Paul Sunu, CEO of FairPoint, told investors during the second quarter earnings call that the improvement in subscriber additions is related to three issues: churn reduction, increasing new subscriptions, and new upgrade tactics.

Sunu noted that customers on slower speeds who were not aware they could get higher speeds have been upgraded.

“We noticed that customers with slow speeds were not taking advantage of higher speeds that were available to them,” Sunu said. “We proactively offered three next tier upgrades to these customers to inoculate them to competitive offers and gave our call center reps an opportunity to upsell to even higher speeds.”

Broadband revenues for the quarter were $34.8 million, up year-over-year from $33.7 million in the same period a year ago.

Sunu noted that when it markets its broadband services it is being embraced by more customers since cable competition in the areas it serves.

“When we do our marketing what we’re finding is that half of our opportunities come from areas with relatively low competition,” Sunu said. “We’re getting good response rates and stick customers so that’s what is helping us with our subscriptions.”

Sunu added that the “work we have done on these upgrades have helped as well.”

During the quarter, FairPoint also continued to make upgrades to its last mile network, enabling it to expand broadband in Maine, New York State, and Vermont.

In Maine, the telco upgraded its COs in 13 towns, enabling it to bring faster broadband speed to over 32,450 locations, for example.  

But broadband was only one part of FairPoint’s growth story in the second quarter. While it continues to weather the obvious transition pains of customers switching off of TDM, the telco saw Ethernet circuits and broadband subscribers continued to increase quarter over quarter.

Ethernet revenue was $24.9 million, up from $23.4 million in the same period a year ago. However, the ongoing migration of customers from TDM to IP continued to take its toll on FairPoint as legacy access revenue declined $1.4 million.

“The decline was driven by the conversion of legacy transport circuits as they’re moving over to fiber-based Ethernet circuits,” said Karen Turner, CFO of FairPoint. “That’s been a fairly consistent trend for us.”

Gains in Ethernet and broadband helped drive up FairPoint’s growth revenue 3.9 percent, or $2.4 million, which is says was related to consumer broadband and Ethernet adoption.

FairPoint said this increase was due to an increase in consumer broadband revenue due in part to seasonality, Ethernet revenue growth resulting from an increase in circuits and settlements recorded in the first quarter of 2016, as well as an increase in hosted and advanced services revenue.

Overall second quarter 2016 data and Internet services revenue rose $1.7 million as speed upgrades and price increases on broadband products more than fully offset subscriber declines. 

From an overall financial perspective, FairPoint reported $206.6 million for the quarter and $413.4 million year-to-date, down year-over-year from the $214.1 million in the same quarter a year ago.

Shares of FairPoint were trading at $14.89, down 18 cents or 1.19 percent in Wednesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- listen to the earnings webcast (reg. req.)

Special report: Tracking wireline telecom earnings in Q2 2016

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