Windstream sees strong FTTT uptake

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Windstream (Nasdaq: WIN) may not be a wireless operator itself, but it has become a key member of the wireless ecosystem as a provider of Fiber to the Tower (FTTT) backhaul services.

Jeff Gardner, Windstream

Gardner (Image source: Windstream)

Speaking at the Citi Global Internet, Media & Telecommunications Conference in Las Vegas, Jeff Gardner, CEO and President of Windstream, said that in 2012 the provider improved its methods to deliver FTTT.

"We made a lot of progress with our ability to quickly turn these up for our customers and begin generating revenue," he said. "In 60 percent of the markets, we are the incumbent so the failure to win those contracts would have meant two things: letting another competitor in and losing all of the TDM revenue that we get today from the circuits that we provide to wireless carriers."

By the end of 2013, Windstream will complete the majority of of its FTTT buildouts in both its traditional legacy regions and in new regions it entered through the various acquisitions it made in recent years.

About 40 percent of the service provider's FTTT contracts are in these new regions. While Windstream has been providing traditional TDM-based backhaul in its own legacy markets for a number of years, it bolstered its out-of-market wireless backhaul capabilities when it purchased Kentucky Data Link (KDL) in 2010.

"When we bought KDL in 2010 we got a long-haul network, which really made us a logical bidder for some properties outside of our footprint today," Gardner said.

Gardner added that as it winds down its FTTT roll out, the investment will be reduced from $250 million to $125 million in 2014.

At the same time, the ongoing growth of wireless data and the opportunity to serve more than one tenant at each cell tower means that there will plenty of services to sell.

"The Fiber to the Tower model was built and justified with an assumption of there being only a single tenant," Gardner said. "Companies like American Tower have five or six carriers hanging off those towers so there are lots of opportunities to pursue."

Like other telcos, Windstream has to also deal with the near-term revenue loss that results from the migration of copper-based TDM to fiber.

While Gardner admits the migration process is an issue, he said that because it has processes in place to more efficiently roll fiber to the sites it can mitigate TDM losses.

Although many wireless operators purchasing backhaul begin at a certain rate, what they pay to Windstream will increase as their customers' data use grows. Unlike TDM-based circuits, which were designed mainly to accommodate voice, fiber will be able to meet these higher wireless data speeds.

"We're building these sites much quicker than we did originally and the wireless carriers are grooming their sites more effectively," he said. "Obviously, they want to take full advantage of their investments as quickly as possible, which means will take more an upfront revenue hit on the TDM side, but it also means that more traffic will get pushed to that fiber connection."

FTTT continues to be a larger factor in Windstream's wholesale revenue machine.

Although Windstream's overall wholesale revenues declined $220 million year-over-year in Q3 2012, carrier service revenues rose 3 percent year-over-year to $162 million, a factor it attributes to ongoing fiber-to-the-tower installations for its wireless operator customers and other carriers.

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