Windstream's Gardner: TDM-based wireless backhaul revenue headwinds to continue throughout 2014

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Windstream has been one of the most aggressive telcos rolling out fiber and Ethernet to cellular towers, but like other wireline providers, it continues to weather a tough revenue storm as its customers migrate off TDM circuits.

Jeff Gardner CEO Windstream

Gardner

Speaking at the J.P. Morgan Global Technology, Media and Telecom Conference, Windstream's CEO Jeff Gardner said that although it will continue to see cannibalization of TDM revenues throughout 2014, the demand for wireless data is creating a robust opportunity for its wholesale business.

"Wireless data is growing incredibly fast across the country so that's the good news about the fiber to the tower story," Gardner said. "We are now substantially complete; we have invested $600 million in our fiber to the tower projects."

The telco is nearing the end of its wireless backhaul deployment initiative, having completed 4,700 of 5,200 towers in its region. It has another 300 under construction.

Last year it spent $185 million on FTTT projects, but this year it plans to spend only $85 million.

Wireless backhaul migration challenges were on display in its first-quarter earnings due to more customers migrating off of legacy copper-based circuits and related network transport grooming. These factors drove down carrier revenue 3 percent to $162 million. However, the overall decline was partially offset by fiber to the tower revenue growth.

"What you saw show up in our quarterly results is a lot of headwinds," Gardner said. "As these carriers is turn up their transport to the towers, they also turn down their TDM circuits so we saw some aggressive grooming of networks in the first quarter."

One area of growth that Windstream will benefit from is now that its wireless operator customers have fiber at their towers, they are asking for higher increments of bandwidth.

"The good news is if you look at the end game in terms of what it looks like, these companies that signed up originally 50 Mbps of service for their fiber to the tower investments have quickly turned that up," Gardner said. "That fiber activity is really ramping up quickly so once you get the noise out around these TDM disconnects, you'll see that it's a fast growing wireless data business."

Despite the short-term TDM-to-IP migration challenge, the telco expects the tide to begin turning in 2015.

"I think that in 2014 there's still going to be some headwinds on the TDM disconnects, but that will be worked out," Gardner said. "In 2015 you should see more of what I would call organic growth that's more consistent with the data increases you're seeing around the country."

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