Consolidated’s Udell: We see opportunities to improve broadband penetration in FairPoint’s markets

Consolidated remains confident that its plans to raise broadband speeds in the FairPoint markets it now serves can enhance customer average revenue per user (ARPU) and stem losses. 

After bringing FairPoint under the Consolidated brand, the service provider announced plans to increase broadband speeds to over 500,000 residents and small businesses across its new Northern New England territory by the end of the year.

Upon completing this build, the service provider said, more than 500,000 residents and small businesses will be able to get speeds two to three times faster than what is currently available in the region today. Nearly 100,000 homes will be able to reach speeds of 1 Gbps via its fiber-to-the-premises (FTTP) network.

RELATED: Consolidated promises to raise broadband speeds for 500K New England customers

Bob Udell, CEO of Consolidated, told investors during its fourth-quarter earnings call that in other areas where it enhanced speeds in its legacy markets, it was able to raise overall penetration rates and it could see a similar trend in the FairPoint regions.

Udell Consolidated
Bob Udell

“In Consolidated’s legacy areas, where we have 100 Mbps or higher, we're in the 35% penetration range,” Udell said during the earnings call, according to a Seeking Alpha transcript. “Across FairPoint, we see a little over 15% penetration. So, we see excellent opportunity for penetration improvements just by that comparison.”

Udell said that what contributed to a decline in FairPoint’s broadband base during the quarter was a lack of customer awareness and seasonal effects of customers that leave New England during the winter months.

“FairPoint was down in terms of broadband connections and that's largely due to two things,” Udell said. “One there hasn't been much proactive marketing in the areas where speeds are high. There's seasonality impact of kind of Snowbird effect and we've made some improvements for the future on helping those customers spend versus disconnect which affects that seasonality.”

The telco expects to have 95% of the network upgrade completed by August with improvements beginning in the first quarter, but Udell said “we’ll really pick up steam in the middle part of second quarter with most of them being completed by the end of the third.”

Enhancing speeds, reducing losses

A key element that will allow Consolidated to meet its broadband expansion goals in the FairPoint is the fiber network.  

Through the acquisition of FairPoint, Consolidated gained a 21,000 fiber route miles fiber network—17,000 of which are in Northern New England—bringing its total route miles to 35,000.

In tandem with increasing its fiber miles, Consolidated enhanced its on-net building reach for businesses and fiber-connected towers to 8,500 and 2,400, respectively.

Udell said that “due to the quality of the fiber network we acquired with the FairPoint transaction,” some customers will see dramatic increases in broadband speeds, including access to 1 Gbps tiers.

“Nearly 84% of customer locations will see their top speed capability nearly triple,” Udell said. “As a result of our investment in the fiber network, 100,000 will be able to get speed to 1 gig. The majority will qualify for speeds between 20 and 100 Mbps.”

One of the byproducts Consolidated gains by of raising speeds is an increase in consumer APRU.

The service provider has seen this trend take place in its legacy Consolidated network, which enables more customers to get access to 50 Mbps or higher to more of its homes.

“Our legacy Consolidated network enables us by example to deliver speed to 50 Mbps or higher to 89% of broadband capable homes,” Udell said. “These higher-speed services drive higher consumer value and over the past year, we have increased our legacy consolidated consumer ARPU by 7%. We expect to see similar impact in the former FairPoint markets as we implement our fiber network improvements.”

Legacy remains a drag

From an overall financial perspective, Consolidated reported mixed results across its consumer and business segments.

The service provider said its lower revenue results continue to reflect expected declines in voice, subsidies and network access revenues.

Here’s a breakdown of Consolidated’s key metrics:

Commercial and carrier: Commercial and carrier data and transport service revenue rose 1.4% or $1.2 million, reflecting growth in data and transport services and voice services. Data and transport services were $84.7 million, up year-over-year from $49.3 million while voice services were $55.5 million.

Consumer: Buoyed by the acquisition of FairPoint Communications, consumer revenues were $140.3 million for the quarter. Broadband revenues, which includes VoIP and data were $63.4 million. The service provider also reported gains in video and voice services where revenues were $22.6 and $54 million, respectively.

Financials: Consolidated reported fourth-quarter revenues of $356.4 million, down year-over-year from adjusted revenue of $374.5 million for the fourth quarter of 2016, after excluding $5.4 million attributed to the equipment sales and service business, which the Company divested in 2016. Consumer broadband rose $200,000, while video, a low margin product, declined by $1.6 million.

For the full year 2017, pro forma operating revenue totaled $1.46 billion, down 6.8% from fiscal 2016. About 44% of the revenue decline is attributed to the divestiture of the equipment services business and the Iowa ILEC in 2016. The balance of the year over year decline is primarily due to continued erosion of legacy voice services and access revenues as well as the step-down in transition funding in CAF-II support.