Windstream takes independent tack in 2016 with last-mile fiber builds

Windstream continues to expand its last-mile network fiber build, a move that will lessen its reliance on third-party providers and provide higher speed services for its business customer base.

Operating as a CLEC and an ILEC, Windstream is an interesting position where it has rent facilities outside of its traditional wireline footprint to satisfy the needs of the multi-location businesses it is looking to attract with cloud and Ethernet services.

Tony Thomas, CEO of Windstream, told investors during the first quarter earnings call that while on-net services are a minimal part of its overall revenue stream, the potential for growth is strong.  

"We are selling more on-net in first quarter of 2016 versus the first quarter of 2015," Thomas said during the first quarter earnings call, according to a Seeking Alpha transcript. "It's still a very relatively small portion of our business and it represents significant opportunity for us. We're not going to be overly prescriptive with goals, but we're working to migrate more of our business here on our own network over time."

Thomas said that the margins for Ethernet and optical wavelength services carried over its own on-net fiber network are positive.  

"The Ethernet and Wave transport network which was really built and funded by our carrier network and used for our own consumer and SMB business -- the incremental margins are quite high, 95 percent when you're using your own transport network that's already been constructed," Thomas said. "When you think about even last mile fiber construction, those are 90 percent margins versus an off-net sale where you could see margins between 30 percent and 50 percent. So as we shift the mix to be more on-net, you'll see the incremental contributions from sales go up given this change in mix."

In mid-February, Windstream announced plans to expand its fiber network in Charlotte, North Carolina, and is planning additional network builds in Tennessee and Virginia.

By adding more on-net buildings the provider said it will be able to remove $1 billion in additional costs it pays on wholesale access to deliver services to its multisite business customers. As part of this process, Windstream will find ways to either better leverage our own network or consolidate the interconnection services from other large service providers.  

In addition to fiber, the service provider is also extending Ethernet and other IP-based services to businesses via its fixed wireless assets that it gained when it purchased Business Only Broadband in 2014.

Windstream continues to see its large enterprise revenues grow, a trend that was evident in its first quarter earnings revenue report. Enterprise service revenues were $491 million, up 3 percent year-over-year. The enterprise contribution margin was 13.7 percent, or $71 million, representing what Windstream said was a 36 percent year-over-year increase. 

For more:
- see the Seeking Alpha earnings transcript

Related articles:
Windstream's Thomas: Higher speed broadband drives up Kinetic IPTV attachment rates
Windstream sets business services on growth track as enterprise revenues rise to $498M
Windstream spinoff CS&L makes first REIT strike, acquiring PEG Bandwidth for $409M
Windstream's board grants final approval for REIT spinoff CS&L