Blackfoot Telecommunications’ plan to purchase FairPoint Communications’ Idaho operations, announced late yesterday afternoon, represents a growth opportunity for Blackfoot and a means of reducing debt for FairPoint.
Blackfoot is a Montana-based incumbent carrier and in an interview with Telecompetitor, Blackfoot CEO Bill Squires said, “We wanted to expand the technology and services we offer to our neighbors in eastern Idaho.”
Blackfoot has a broadband penetration rate above 96% in its ILEC territory but that number is “significantly lower” in the FairPoint properties, which include Fremont Telecom, an ILEC territory and Fretel Communications, a CLEC operation, Squires said.
“It’s an opportunity to expand our broadband reach,” said Squires.
Fremont Telecom operates in a high-cost area, but unlike most FairPoint properties, which fall under price cap regulation, the Fremont operations use rate of return. Blackfoot is also a rate of return carrier, which should make it easier for the company to obtain Universal Service funding for the properties, which FairPoint purchased about 10 years ago.
Blackfoot stands to gain 5,400 new customers through the purchase, expanding its base by 25%. The company also will expand its fiber route miles by 25%, bringing its total fiber backbone route miles to 8,500. FairPoint also has a minority interest in Syringa Networks, a fiber network owned by several rural Idaho telcos, which will be part of the sale to Blackfoot.
In a press release, FairPoint said it was selling the Idaho properties to reduce debt, thereby enhancing shareholder value.
A FairPoint spokesperson said the debt was not related specifically to the Idaho operations but was general company debt. The spokesperson declined to provide additional details but considering that Blackfoot is paying $30 million in cash, it appears that FairPoint plans to use at least some of the cash to pay down some of its debt.
The FairPoint spokesperson also declined to comment on whether the company would be selling other properties but did note that “we have said our telecom properties are sources of free cash flow – as our New England [business] becomes self-sufficient and generates free cash flow, it will be easier for us to consider strategic divestitures.”
The Idaho purchase from FairPoint is the third purchase Blackfoot has announced this year. In early 2012 the company bought local web hosting company Modwest, followed by the acquisition of Cutthroat Communications last month.
“We’re going to have our hands full integrating [the FairPoint] operations into our structure, but I think it’s incumbent on all of us to keep an eye out for opportunities,” said Squires when asked about potential future purchases.
Blackfoot’s desire to expand is motivated in part by reforms to the Universal Service program, Squires said. “Our reliance has dramatically decreased,” he said. “We need to continue to look for opportunities for scope and scale.”
Blackfoot’s purchase of the FairPoint properties requires FCC approval, but that is unlikely to be a roadblock, considering that the company took just two years to upgrade nine rural exchanges that it purchased from Bell Company U.S. West in the late 1990s.
The transaction is expected to close in early 2013.