FairPoint takes $37.4M in CAF II funds, eyes broadband expansion for 105K locations

FairPoint has accepted $37.4 million in funding from Phase II of the FCC's Connect America Fund (CAF-II), enabling it to build network infrastructure that will bring 10/1 Mbps broadband services to nearly 105,000 locations in 14 states.

The support program and FairPoint's commitment will run for over six years.

Paul Sunu, CEO of FairPoint, said in a release that it is "committing hundreds-of-millions of dollars in capital to build and upgrade infrastructure in our service territories to extend affordable broadband services to remote areas" that had been previously difficult to serve.

Since accepting CAF II funding must be done on a state-by-state basis, the company accepted funds based on a number of factors including the totality of the business and each state's regulatory model. After conducting an evaluation of each state, FairPoint accepted support for 14 states but declined offers for its service areas in Colorado and Kansas. In those two states, FairPoint said it will continue to make investments in its network while evaluating the FCC's competitive bidding process for funds.

Sunu alluded to the fact that it might not be able to build a business case to upgrade broadband services in some areas during the second quarter earnings call.

"Let me say though we believe in and support the positive intent of CAF-II to provide infrastructure and bring quality broadband connections to those in remote locations and so we would like to participate," Sunu said during the second quarter earnings call, according to a Seeking Alpha transcript. "Unfortunately, we can see that the cost to reach some of these remote areas cannot be costs justified even with CAF funding,"

For fiscal 2015, FairPoint expects that it will no longer be eligible to receive its current high cost voice support of $39.3 million ("CAF frozen support"), subject to certain transition rules. It said the net impact of no longer receiving this revenue while accepting $37.4 million in CAF II funding as well as $7.4 million in transitional support will be offset by incremental spending associated with CAF Phase II in 2015. 

Jennifer Fritzsche, senior analyst for Wells Fargo Securities, said in a research note that the acceptance of the CAF II funds will give the carrier a longer-term broadband revenue boost.

"Like the other RLEC peers, we believe FRP will be able to use this CAF support to its advantage," Fritzsche said. "While there is of course a capex element to this build, the additional revenue it receives from the buildout of these additional households should help it longer term."

Following fellow ILECs Frontier and Windstream, FairPoint previously used CAF I funding to extend broadband into harder to reach areas of its 14-state footprint. By using funding from that program, the telco delivered upgraded broadband service to over 7,400 locations in unserved and underserved areas using $4.9 million, a figure that included incremental federal support and its own capital.

FairPoint is the third service provider to announce that it has accepted CAF-II funding. In June, Frontier accepted $283 million annually in CAF II support  to deploy broadband to more than 650,000 high-cost rural locations. Earlier this month, Windstream accepted $175 million of CAF-II funds, a move that will enable it to extend broadband services to nearly 400,000 rural households across 17 states.

In related news, FairPoint reached a settlement agreement with the Vermont Department of Public Service that would resolve the state's service quality investigation of the telco pending since last December. The agreement, which still requires approval by the Vermont Public Service Board, calls for FairPoint to pay a significant number of retroactive customer bill credits for out-of-service repair delays and to provide better guidance to telephone customers who are eligible for such credits in the future. 

Broadband expansion has been a key element of growth in Vermont. In July, the telco completed another broadband expansion project, bringing high speed Internet to 7,100 locations in 53 towns across Vermont. 

For more:
- see the CAF funding release
- and the Vermont settlement release

Related articles:
FairPoint accepts $3.3M in CAF I rural broadband funding
Windstream takes $175M in Connect America Funds, sets broadband expansion to 400K rural locations
Frontier will use CAF II funding to expand broadband in acquired Verizon territories

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