Fairpoint's Annual Report Shows Losses in 2008

Fairpoint’s annual report sent shivers through the investment community.

Aside from reporting its 68 million dollar loss, the company also announced it is suspending its dividend.

Analyst Todd Rosenbluth at Standard & Poor’s in New York follows Fairpoint and other telecommunications companies.

He says many investors sold the stock once they learned there would no longer be a quarterly dividend.

Dividend yields are an investment appeal. And the absence of one makes them question, and us why we should be owning this stock versus others.

Fairpoint Vice president Jeffrey Allen says the company’s board of directors believed they had to temporarily eliminate the dividend.

He says the company’s losses are sucking resources from where they might be needed.

Allen says in that vein, Fairpoint’s decision to suspend the dividend frees up a lot of money.

To some extent if you look at it if you took that same amount of cash, it’s about 90 million dollars over the course of the year, and you utilized it to pay down higher interest debt, that will give you a substantial return especially if the bonds are paying at any kind of discount to their face value.

Fairpoint’s decision to hold on to more of its cash is understandable since the company is losing customers faster than Verizon ever did.

Its annual report says the loss rate has reached more than 13% a year, which is at least 5% higher than it was under Verizon.

Erle Pierce, a former Verizon spokesman, now heads a public relations firm.

Pierce says he thinks Fairpoint needs to start reversing the high number of line losses to become profitable.

…the first thing you have to do is preserve your current customer base and then go after those whom you’ve lost. And the way you do that is with packages and bundles and price competitiveness.

Fairpoint officials say they want to get to a place where they are offering attractive bundles of service at a fair price.

But they have been unable to do that because of the trouble they’ve had getting their systems on track.

For example the company has been slow to fill orders for new service.

And frustrated customers have dropped Fairpoint for another provider.

Vice president Jeff Allen says company officials are aware of the problem, but they need more time to get things back in shape.

As far as order processing,…we are not back to our normal intervals at this point. We had hoped to be back at our normal intervals by the middle of March and that’s going to probably be more like the beginning to middle of April…

This comes at a time when telecom companies across the country are struggling because of the weak economy.

But Fairpoint is deeply indebted, and needs a healthy revenue stream just to pay its quarterly interest costs.

If line losses persist at a high rate, and there were no longer enough customers to pay Fairpoint’s expenses, the company could be forced to declare bankruptcy.

No one would say that outcome is on the horizon.

Erle Pierce, the former Verizon spokesman says he thinks the possibility is remote.

But he says the history of regulated utility bankruptcies in New Hampshire shows nothing really changes for customers when a firm goes belly up.

When PSNH went bankrupt, they didn’t stop providing power. You know the machines that provide the dial tone are the same today as the machines that provided dial tone back in Verizon’s day.

Fairpoint’s financial problems have gotten the attention of New Hampshire’s Consumer Advocate.

She has filed official papers asking the Public Utilities Commission to open hearings on Fairpoint’s finances.