Windstream reaches 200,000 users with VDSL2, sees further broadband growth opportunities

Windstream is progressing with its VDSL2+ deployment, announcing that during the first quarter it reached 200,000 customers in its ILEC territory.

Tony Thomas, CEO of Windstream, said during the earnings call that by pushing fiber deeper into the network, it is seeing two benefits: improved capacity and better availability of broadband speeds.

"Within consumer, we are focused on driving stability and ultimately growth in this high-margin unit," Thomas said during the earnings call. "Through the deployment of VDSL2+, we can deliver faster speeds to more households, which will drive ARPU growth through advanced speed sales and better position Windstream against the competition."

In tandem to driving VDSL2+ into its network, the telco launched its Kinetic IPTV service to 50,000 homes in Lincoln, Neb., in April.

Bob Gunderman, CFO of Windstream, said the company is seeing a good uptake of the IPTV service. "While it's too early to comment on specific numbers, initial take rates have been promising after one month in service and we plan to deploy service in other markets in the next few years," Gunderman said.

By shortening the loop lengths of its copper network with the VDSL2+ rollout, Windstream will be able to deliver 10 Mbps to 83 percent of its footprint and 24 Mbps and above to 50 percent of addressable households.

Gunderman said it will "shorten loop lengths further through the Connect America Fund part one and Connect America Fund part two programs, which will provide additional opportunities to increase broadband speed capabilities."

Interestingly, the company's move to spin off its wireline assets into Communications Sales and Leasing (CS&L), a publicly traded Real Estate Investment Trust (REIT), could provide it with more opportunities to expand the VDSL2+ services into more markets.  

"Going forward, our bias there will be to co-invest with CS&L and as we think about the types of projects we'll invest in together, you can think about those opportunities to improve the copper distribution lines that we contributed in the first steps of the transaction," Gunderman said. "Because Windstream's customers will have the opportunity to benefit from those investments over the 35-year period, we will provide for the ability to free up additional capital to accelerate some of the investments in VDSL2+."

But the consumer segment is just one part of the VDSL2+ delivery equation. The service will also benefit small to medium businesses (SMBs) in its traditional ILEC market.

Thomas said that "our ILEC SMB markets will benefit from the VDSL2+ investments we're making to increase our broadband speed capabilities."

Broadband overall was a key element of Windstream's first-quarter revenue mix.

Due to continued demand for faster speeds and additional services, first-quarter consumer broadband service revenues were $123 million, up 2 percent from the same period in 2014. Overall consumer service revenues in the first quarter were $312 million, essentially unchanged from the same period a year ago.
Similar to other telco brothers like Frontier Communications and CenturyLink (NYSE: CTL), Windstream reported that wireless operator migrations from legacy TDM circuits to Ethernet drove down sales 7 percent to $177 million year-over-year.

To combat revenue pressures in the carrier business, the company is investing in new long-haul optical routes.

Finally, enterprise and small business service revenues were $741 million in the first quarter. Data and integrated services revenues grew approximately 3 percent in the first quarter from the same period a year ago to $427 million, led by demand for IP-based solutions and next-generation data.

The company's first-quarter total revenues were $1.4 billion, down 3 percent from the same period a year ago.

News of Windstream's revenue decline did not sit well with investors as the company's shares were listed at $9.99, down 29 cents or 2.82 percent, in Thursday morning trading on the Nasdaq stock exchange.  

For more:
- see the earnings release

Special Report:  Wireline telecom earnings in the first quarter of 2015

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