FairPoint will consider M&A opportunities, CEO says

After coming off a union strike that posed several challenges for the telco, FairPoint Communications is considering its future as a telco and part of that story could include some kind of merger or acquisition with another telco or other company, CEO Paul Sunu told investors during the company's first-quarter earnings call.

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While he did not provide any specific plans, Sunu said that M&A is one option the telco is considering to bring more value to its shareholders.

"Understanding the reality of a consolidating industry, intense competition and secular headwinds, we must consider mergers and acquisition as either seller or buyer as our overall strategy," Sunu said.

Sunu added that "as all of these efforts are at very early stages it must be said this exploration will be done carefully and methodically."

Despite the challenges it faced during the quarter, the service provider did see a bright spot in Ethernet service sales. Ethernet services continued to be a growth factor, making up 10.7 percent of its total revenue, up from 8.6 percent in the same period a year ago. The service provider added a total of 491 Ethernet circuits. This included 271 new wholesale and 220 retail Ethernet lines.

FairPoint said in its earnings release that it expects growth in its Ethernet to continue based on demand from customers such as regional banks, healthcare networks and wireless carriers.

The telco is now facing greater competition from Comcast Business (NASDAQ: CMCSA), which announced during the quarter that it made its own Ethernet service suite available to businesses in additional New Hampshire and Vermont communities.

Still, data and Internet services revenue declined by $0.9 million due to decreases in new broadband subscriber additions, a factor that was partially offset by growth in retail Ethernet revenue. Voice service revenues also declined in the first quarter. Due to the loss of local access lines and lower long-distance voice usage, first-quarter voice services revenue declined $9 million year-over-year to $87 million. 

At the same time, access revenue declined $4.2 million, a factor it attributes to continued loss and conversion of legacy transport circuits to next-generation fiber-based services as well as higher service quality penalties in the first quarter of 2015. These losses were partially offset by an increase in wholesale Ethernet revenue primarily driven by conversion of legacy cellular tower circuits and higher revenue assurance activity in the first quarter of 2015 compared to the first quarter of 2014.

Sunu said during the earnings call that the first quarter was impacted by the strike of nearly 1,700 workers in northern New England and the harsh winter, but now that the workforce is back in place, its trouble tickets dropped to what have been the lowest levels since 2008.

"We made significant progress on our workload and the trouble load came down to pre-strike levels, overcoming the unprecedented succession of winter storms in New England," Sunu said. "When the strike ended, we augmented our incumbent workforce with contractors for a week to bring the backlog down to historic lows."

Sunu added that "the impact of work stoppage, inclement weather and our decision to go dark with marketing in anticipation of and during the strike affected our results."

Overall company revenues declined to $214 million from $231million with voice services revenue falling mainly on the back of fewer lines in service, lower long-distance minutes of use and seasonality.

Looking toward the rest of 2015, FairPoint expects to generate $120 million to $125 million of free cash flow adjusted for estimated avoided costs.

Shares of FairPoint were listed at $18.75, down 28 cents or 1.46 percent, in Thursday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special Report:  Wireline telecom earnings in the first quarter of 2015

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