Jeff Gardner, CEO & President, Windstream
Windstream Corp. (Nasdaq: WIN), once nothing more than a voice-centric independent ILEC, continues to transform itself into a provider of business, broadband and fiber services. Unlike its independent ILEC brothers CenturyLink (NYSE: CTL) and Frontier (NYSE: FTR) looking to make a monster acquisition, Windstream's M&A strategy has been more targeted on specific growth opportunities, including notably business services, data centers and fiber. Because of aggressive marketing campaigns and its Price for Life promotion, Windstream reported its lowest line loss in Q1 2011 since becoming a public company in 2006. FierceTelecom Senior Editor Sean Buckley caught up with Jeff Gardner, CEO and President of Windstream, during the recent TIA "Inside the Network" event to talk about where he wants to take Windstream in 2011.
FierceTelecom: Jeff, during your keynote at TIA's Inside the Network event, you talked about lowering landline loss and gaining new subscribers in Q1 2011. Can you reflect on Q1 for a minute and the drivers of growth?
Jeff Gardner: We're seeing steady improvement on the wireline side, but the real highlight of our first quarter is we had the lowest absolute line loss ever since we became a public company. Not only did we have good enterprise growth, but also very good stability on the consumer side.
FT: Do you see your "Price for Life" guarantee and new bundling campaigns as major drivers behind lower line loss in Q1?
JG: Along with Price for Life, we rolled out a new campaign called the "Quitter Campaign" that's specifically focused on convincing cable customers to switch over to Windstream. Some of the ads said things like "quit cable" and "quitters win." These campaigns struck a nerve to influence people to come over on a Price for Life bundle or another value-add package. It was a real solid quarter and our integration continues to go well with all of our new businesses. We're pretty happy. The stock market reacted pretty well and we've been one of the top performing telecom stocks. People get our story and we have done all of these acquisitions to transform us into a growth business, and the few growth businesses that will pay a dividend. It's a nice place to be.
"We just built out a 10,000 square foot facility in Boston. ...We think our data center business is capable of double digit growth of 20 percent" - (Image: Windstream coverage map, Eastern U.S. Red dots denote data centers.)
FT: One of the key acquisitions you made in 2010 was Hosted Solutions, one that gives you enhanced data center and cloud capabilities. How important is cloud and managed data center connectivity to your business?
JG: It's exciting. We bought Hosted Solutions last year, a company we thought we did a nice job capturing that cloud market, which is still a small part of their business and even a small part of our business, but the potential is big. Initially, we're going to get small and medium business and over time more businesses of size will realize cloud offers some scale and efficiency they can't achieve on their own. I was just in Boston at the JP Morgan Investor conference and visited one of our data centers there. We just built out a 10,000 square foot facility in Boston. We're excited about it and our data center business is right on plan. We think our data center business is capable of double digit growth of 20 percent and we continue to make a lot of progress with our existing customers. The real power of that business is we bring a lot of leads from our existing enterprise business to the cloud and the business services side. If our customers want colocation, disaster recovery, managed services or go all the way to cloud computing, we can do that now. They still value a single telecom provider to make things easy for them.
FT: So, there's going to be a bigger focus on multisite businesses?
JG: I think that's a huge advantage we have on the technology side. We do well with these multisite locations. We have grown our business through the NuVox acquisition and through the acquisition of KDL we have many more opportunities because our fiber is many more places and we can build economically to multi-site locations than our competitors.
FT: Speaking of KDL and the fiber assets it brings, Windstream has been building a new fiber to the cell site business. Do you see that business growing this year?
JG: We're going to continue making investments there to build out our fiber network. We've been real successful winning fiber to the cell opportunities both in market and out of market. That's great business. There's an existing customer and a nice return for us and is solving a real problem for the wireless carriers.
FT: Windstream obviously will serve some large Tier 1 wireless operators in larger markets, but can you talk about the challenges of providing wireless backhaul in Tier 2-3 markets?
Windstream coverage map, Western U.S.
JG: The smartphone phenomenon is occurring in both in rural and urban markets. You'd be surprised of the number of places that are more rural where there are fiber backhaul opportunities. That will continue as these smartphones become more pervasive.
FT: Let's turn to broadband services for a minute. With a growing focus on providing services to MDUs and your roll out of higher speeds via ADSL2+ and VDSL2?
JG: We're deploying VDSL2 in our markets and it's allowed us to offer 20 Mbps and above. In our biggest markets we can get 12 Mbps to nearly half of our customers. You have to keep in mind that most people on average are only buying 4 Mbps so we have a lot of headroom if our customers want a Netflix or a different video experience. Today, many people feel good about what they get from that 4 Mbps average. We're going to get better there and stay competitive because 4G wireless is rolling out so we need to keep a nice gap.
FT: Besides broadband, video continues to be an ongoing driver with your bundling process via your relationship with DISH. What's your ongoing video strategy going forward?
JG: Yeah, we have over 20 percent penetration of residential customers with the DISH business today. We're also trying other things with an over the top (OTT) box and a movie offering from the net and not pay a subscription service. That's brand new for us and we don't have a lot of experience with that but that's something we just deployed this month. You keep hearing that there's a segment out there that does not like paying a subscription service. You can get a lot of content over the air with a decent antenna system and supplement that with content available on the net and it's cheaper than subscription service. We're going to see what kind of demand that service generates in our markets. We're also working aggressive promotion strategies with DISH. They are great to work with and we're driving deep penetration in our markets.
FT: In 2011, the overall focus will be on driving down line expanding business services, video and broadband?
JG: Yes, business, data center services and fiber. That's where a lot of growth is coming from. We reported 2.5 percent growth in enterprise business service revenue and the fourth consecutive quarter of driving growth, but we think we can do better.