Despite emerging from bankruptcy last month and shedding $1.8 billion in debt, FairPoint Communications still faces considerable challenges.
In assigning ratings to FairPoint’s creditworthiness for the first time since the telecom provider filed bankruptcy, Moody’s Investors Service expressed concerns about FairPoint’s ability over the long term to remain competitive in the states where it generates the lion’s share of its business – Maine, New Hampshire and Vermont.
“Despite spending significant capital to expand the reach of its high speed network across the three northern New England states, significant execution risks remain, including the challenge to win back customers who have migrated to competitive providers," Moody’s Vice President and Senior Credit Officer Gerald Granovsky said in a statement.
Charlotte, N.C.-based FairPoint generates some of the lowest EBITDA (earnings before interest, taxes, deprecation and amortization) margins among incumbent wireline carriers that Moody’s rates, according to the New York-based ratings agency. Moody’s said FairPoint’s goal to shift “to a more competitive cost structure may limit the company’s ability to grow if it needs to add capacity to its network or devote greater spending to marketing and promotional activity."
Moody’s also expressed some doubt over whether FairPoint’s revenues in growing areas of the business, including high-speed Internet lines and enhanced communications services to businesses, would rise faster than the declines in the company’s legacy voice revenues.
FairPoint filed for bankruptcy in October 2009.
In March 2008, the company acquired Verizon Communications’ wireline operations in northern New England, making FairPoint the eighth largest telephone provider in the United States. But the company faced problems transitioning Verizon’s order flow and billing systems. FairPoint’s operating systems may need further adjustments as the company attempts to increase its revenues, according to Moody’s.
FairPoint operates in 18 states, serving about 1.5 million access lines. Roughly 85 percent of the company’s business is in northern New England, according to a company spokesperson.