Post-Chapter 11, FairPoint’s losses keep on coming

Posted April 09, 2011, at 9:03 a.m.
Last modified April 10, 2011, at 4:39 p.m.

FairPoint may have emerged from bankruptcy, but its financial problems haven’t disappeared.

The company lost $282 million in 2010, according to a financial report filed last week with the U.S. Securities and Exchange Commission.

That figure is 17 percent higher than the $241 million it lost in 2009 and more than four times the $68.5 million loss in 2008, the year FairPoint purchased Verizon’s land line and Internet operations in northern New England.

The loss may not be bad news as long as it reflects continued investment in modern fiber line technology, said telecom industry analyst Robert Rosenberg.

Since taking over for Verizon, FairPoint has replaced outdated copper lines with fiber throughout its network backbone and the so-called “middle mile.” (Think of the backbone as a main artery like Interstate 93 and the middle mile as main roads like Route 111.)

The company has no plans to extend fiber lines to the “last mile” — from the node to the home — as Verizon was doing with FiOS before it realized the project was too expensive in rural New Hampshire.

Rosenberg, president of New Jersey-based Insight Research Corp., said replacing fiber lines to the node, as FairPoint is doing, is a reasonably good investment, but “ideally, you want to get right to the home.”

FairPoint’s long-term strategy is to focus on expanding broadband and increasing its base of DSL, or broadband Internet, to cover for the ever-increasing loss of the traditional business of handling voice calls over land lines.

FairPoint has lost about 40 percent of its land line customers in New Hampshire since the cutover from Verizon systems began two years ago. Total-access lines in the state declined from 415,671 in January 2009 to 252,309 in November 2010.

They’re not alone.

“There’s momentum in the U.S. for most voice calls to take place wirelessly,” Rosenberg said.

That means telecom providers will have to focus on Internet services that can be provided through their wire line infrastructure, such as video-chat services that are superior in quality to the low-cost online company Skype, Rosenberg said.

It’s unclear how much, if any, of the 2010 loss is related to the company’s expansion of broadband into rural areas. FairPoint spokeswoman Rose Cummings could not be reached for comment Wednesday afternoon.

State regulators in New Hampshire, Maine and Vermont required aggressive broadband expansion as a condition of the sale, and FairPoint has invested heavily in meeting its annual benchmarks over the past two years. In New Hampshire, FairPoint is required to offer broadband service to 95 percent of its customers by 2013.

FairPoint announced plans to buy Verizon’s land line and DSL business in New Hampshire, Maine and Vermont in 2007, and the sale was final in early 2008.

In October 2009, the company filed for bankruptcy, a move that came as no surprise. The debt-laden company was reeling from months of service and billing problems during the “cutover” from Verizon computer systems earlier that year. The problems led to millions of dollars in unanticipated expenses.

At the same time, the nationwide financial crisis raised the cost of the heavy debt load that FairPoint took on to buy Verizon’s access lines in New Hampshire, Maine and Vermont.

FairPoint emerged from bankruptcy in January with total debt of $1 billion, nearly two-thirds less than when it filed for Chapter 11. In addition to the debt reduction, FairPoint was able to secure a $75 million revolving line of credit to fall back on.

On the day the bankruptcy plan went into effect, Jan. 24, the company handed out $1.8 million in bonuses to employees and a consultant, which were negotiated as part of the bankruptcy plan.

Before acquiring Verizon lines, Charlotte, N.C.-based FairPoint was turning profits of about $30 million a year.

Ashley Smith may be reached at 594-6446 or asmith@nashuatelegraph.com.

To see more of The Telegraph visit nashuatelegraph.com.

Distributed by McClatchy-Tribune Information Services.

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