US telco FairPoint Communications (NASDAQ:FRP) has accepted US$37.4m in annual support from the FCC’s Connect America Fund (CAF) to expand broadband services.
In accepting the phase two funding, the North Carolina-based telco said it has committed to constructing and operating network infrastructure in about 105,000 locations in 14 of the 16 states in which it operates.
FairPoint CEO Paul Sunu commented: “We are 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 which will help businesses and residents alike stay connected to the world.”
Frontier Communications and Windstream have already accepted CAF phase two funding of US$283m and US$174.9m respectively.
The FCC determines which locations qualify for CAF support and companies accept funding on a state-by-state basis. FairPoint said that while some locations will prove uneconomical to serve, it based its acceptances on a variety of factors, including the business and the regulatory model of each state. The telco said it will evaluate the competitive bidding processes in Colorado and Kansas, the two states for which it declined funding offers.
FairPoint received US$39.3m of CAF phase-one support, but said it expects it will no longer be eligible to receive this in 2015. It will, however, receive US$7.4m in transitional support.
FairPoint reiterated its 2015 guidance for unlevered free cash flow of US$115-US$125m and capex of less than US$120m.
Wells Fargo analyst Jennifer Fritzsche noted that this guidance incorporates “many moving parts” of CAF phase-two support.
Ultimately, however, she believes that FairPoint, and its peers, will be able to use the CAF support to its advantage.
“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,” she said. “We view the recitation of the prior guide for both FCF and capex as a positive and continue to believe FairPoint has greater cost cutting opportunities which could further drive EBITDA higher.”