FairPoint Communications will face challenges this year in its efforts to achieve profitability, including contentious labor contract negotiations as evidenced by a protest Monday at its annual shareholders meeting. The telecommunications company is also facing a delay in its rate case to obtain a $67 million subsidy in Maine, and the continued loss of its telephone customers.
FairPoint posted a net loss of $32.2 million, or $1.22 per share, in the first quarter of 2014 on lower-than-expected revenue. In the first quarter of 2013, the company suffered a net loss of $47.5 million, but it earned a modest profit of $6.1 million in the fourth quarter.
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The company’s first-quarter revenue shortfall of $1.58 million, or about $0.10 per share, was due in part to an estimated $1.9 million loss because a discount marketing campaign to help retain existing customers was offered more broadly than intended, FairPoint CEO Paul Sunu said during last week’s earnings call.
Total revenue for the first quarter was $230.6 million, compared with $235.5 million in first quarter 2013 and $233.4 million in fourth quarter 2013.
FairPoint, based in Charlotte, North Carolina, with operations throughout northern New England, lost 6.8 percent of its phone customers from the first quarter of 2013 to the most recent first quarter.
However, Sunu said that was actually good news, because it was the lowest year-over-year customer loss since 2008. The company lost 7.8 percent of its phone customers between the first quarters of 2012 and 2013.
Adding to the first quarter’s numbers was the cost of contract negotiations, which Sunu pegged at $1.4 million. The talks got off to a rocky start, with FairPoint proposing a plan to freeze the employee pension plan, discontinue post-retirement health care benefits and move union employees to the benefit plans offered to non-union workers, among other measures. The previous five-year contract was considered relatively generous for telecommunications-industry workers because of annual 3 percent raises above cost-of-living increases, corporate profit-sharing and health care coverage for retirees.
FairPoint workers from Maine, New Hampshire and Vermont were joined by local union leaders and members of the International Brotherhood of Electrical Workers and the Communication Workers of America at a protest rally in Charlotte to coincide with the company’s annual shareholders meeting Monday.
FairPoint employs roughly 2,000 people in northern New England who are represented by the unions. Their contract expires Aug. 2, and bargaining for a new contract is underway. According to Maine Department of Labor statistics, FairPoint employs between 500 and 1,000 people in Maine.
The company provides Internet, landline telephone and other telecommunications services in 18 states. Its largest holdings by far are in Maine, New Hampshire and Vermont, where it has about 1.1 million Internet and phone lines.
The company entered the northern New England market when it bought Verizon Inc.’s landline telephone operations in the three states for $2.3 billion in 2007. Barely 18 months later, it filed for Chapter 11 bankruptcy reorganization with a battered financial sheet and reputation.
FairPoint emerged from bankruptcy in December 2010 but has suffered net losses from operations every year since.
Sunu said the proposal to cut benefits and freeze pensions is merely FairPoint’s opening bid, and that dozens more negotiation sessions with union leaders are planned.
On Monday, union leaders accused the company of asking workers to agree to wage levels that are below federal and state standards.
“Company contract proposals want to enforce poverty wages, cut pensions and slash health care,” Serina DeWolfe, a member of CWA Local 1400, said in a media release. “Since 2011 our CEO has seen his compensation increase by more than 37 percent. We want to know why the board rewarded Mr. Sunu so handsomely even as management eliminated the jobs of hundreds of our co-workers and now proposes to pay new hires poverty wages.”
FairPoint spokeswoman Angelynne Amores Beaudry said the company is not planning to reduce wages for existing employees, which she said receive an average annual compensation of $115,000, including benefits.
She said the accusation that FairPoint intends to pay new hires less than minimum wage was baseless.
“No company can pay below minimum wage,” Amores Beaudry said.
Another financial challenge for FairPoint is specific to Maine.
In late April, the Maine Public Utilities Commission began evaluating the company’s request for a subsidy that, if approved, would increase the phone bill of everyone in Maine who uses a cellphone or landline.
FairPoint, the largest landline provider in the state, filed a request with the PUC last October that claimed it was losing money trying to meet a state mandate to provide basic landline phone service to everyone in its service territory. To make up the shortfall, it is seeking a disbursement of $66.9 million from the Maine Universal Service Fund, which is collected through a small fee on everyone’s telephone bill.
The increase would add an estimated $5 to a typical cellphone customer’s monthly bill of $75, and $3 to a typical landline customer’s monthly bill.
But a new law has put the rate increase on hold.
A state law enacted this month allows the next Legislature to weigh in on how basic phone service subsidies should be allocated. The PUC originally said it expected to make a decision on FairPoint’s subsidy request by late summer, but it now says the decision won’t be made until at least mid-2015.
Despite those and other challenges, FairPoint CEO Sunu told investors Monday that efforts to increase Internet revenue, improve networks and cut costs will help the company become more sustainable, increase cash flow and add value to shareholders.
“As we look forward to the balance of the year, we see continuing strength in many trends,” he said.
J. Craig Anderson can be contacted at 791-6390 or at:
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