with Jeff Gardner, CEO of Windstream
LAS VEGAS--Windstream (Nasdaq: WIN) has transformed itself into a major player in the business services space. With the integration of Paetec complete, it is now focusing on presenting itself to its enterprise customers as a trusted partner that can solve their unique problems. The once POTS-centric ILEC's movement into the business space has been driven by Windstream's CEO Jeff Gardner. Sean Buckley, senior editor of FierceTelecom, talked to Gardner during the recent COMPTEL Plus Spring convention about the trends he's seeing in the business services market.
FierceTelecom: Your effort to become a bigger player in the business services arena is a key focus. Can you talk about the state of Windstream's position?
Jeff Gardner: Our future is about enterprise sales and I think we're starting to see momentum in that space. We have made a lot of progress on all of our transformative acquisitions so we're looking more and more like one company. Our goal is to drive up our growth rate in enterprise sales. We have this unique offering with our integrated solutions group (ISG) equipment business, our voice and data business, and our cloud business and we're delivering on something we set out to do which is smart solutions and personalized service. We're giving them a different feeling about their communications provider and helping them understand how they can do anything from an MPLS network to the cloud to equipment. I feel like we're in a really good place with our network. We made big investments to bring all of our network investments together as one.
The other thing is we brought in a new chief marketing officer [Matt Preschern] from IBM (NYSE: IBM) and a new CTO Randy Nicklas. To me it's all about the network and how good can you market. Marketing today is so different. It's about demand generation and what's exciting about 2014 is we're investing a lot more in collaboration. Now it's just about execution.
FierceTelecom: The economy continues to be in flux. Is that having any impact on business sales?
Gardner: You don't want your sales people to become economists. The macro environment has been tough, but we have a great product, and we're the insurgent so there's no reason we can't sell through that.
FierceTelecom: Windstream plays a unique role as both an ILEC and CLEC. Do you think that gives you some advantages over other competitors?
Gardner: The strategic direction that we did a couple of years ago has been on the enterprise side. We have a good stable consumer business, but the challenge is to do well at both businesses when one is more strategic so we have separated our marketing teams. We have a separate consumer and enterprise marketing team, but essentially everything else is combined. They're going after two different sets of customers and are executing differently, but it's the same network. A lot of the investments we're making in the ILEC, like fiber to the tower and stimulus investments, are driving fiber deeper into the network, which will enable us to do more facilities-based enterprise sales. I think it's been helpful to us in a couple of ways. The consumer business, although it's declining, produces a lot of cash flow and has really enabled us to make these investments on the enterprise side.
FierceTelecom: Being that we're at COMPTEL, what are your key concerns about issues such as copper retirement, special access and the IP transition?
Gardner: AT&T (NYSE: T) is one of our biggest partners both on the buy and sales side. We believe we can help them do this and manage it right. There's a lot that needs to be cared for with the IP transition. What I think gets lost is it is one thing to talk about saving money by going to new technology. However, a lot of customers are happy with what we may deem as an old technology, but they may not be ready to move. If they are getting served well with Ethernet over Copper (EoC), they don't care about going to fiber, especially if it's going to cost them more money.
FierceTelecom: You recently launched a program for your resellers. How is that shaping up?
Gardner: We're really pleased with the way that has gone. When we bought Hosted Solutions in 2010, they ran five data centers. We have kept that same team in place so we really allow those guys to operate somewhat independently. We have gotten them to network better with our sales force, but that team has done a very nice job of growing top line in the mid-teens. We hired about 30 or 40 sales people in that business and they are all going to begin paying dividends this year. I am really excited about that opportunity. We do a nice job with the cloud by focusing on the mid-sized sector with managed services, which is where we can differentiate the most.
FierceTelecom: Speaking of cloud, we're hearing more talk about hybrid clouds. Do you see that as a growing opportunity?
Gardner: I think we see it that way. The hybrid cloud is the comfortable way to introduce folks to the cloud. One of their big issues is around security, etc. It's probably more secure than anything you can do, but you have to get your customers comfortable so the hybrid is a nice bridge to get them into cloud computing and seeing the advantage of managed services.
FierceTelecom: You are also a key wholesale supplier. Are you leveraging your fiber to the tower build to target other business service and residential opportunities?
Gardner: When you look at the number of buildings that are within a half mile of your fiber facilities, it just enables you to get more buildings on-network. There are all kinds of residual benefits with the fiber. The internal rate of return on those projects are positive without considering that but then you add on the potential for new enterprise customers and also the ability to get a second tenant. Many of these we're building out for the large guys, and you know that these towers have multiple tenants. With an incremental investment we can serve a second tenant. We're almost done with our big fiber to the tower projects. There's more out there than we thought. We originally thought it would tail off in 2014, but it's a lot less than last year. Then we're working with our partners about small cells. I think Windstream will be well positioned to work with the large carriers on their small cell projects.
FierceTelecom: Copper retirement is also a hot button issue at this week's COMPTEL show. What does that mean to Windstream?
Gardner: Capital is a scarce resource. We want to do what makes sense over the long run. If a customer is happy with an EoC application, there's no compelling reason to force them to change. The technology developments around copper have been very good. That's why we're focused on these trials and the IP transition. We just want to make sure if you focus on the consumers and what they're getting today, I think you'll find your way to the right answer.
FierceTelecom: One of the other areas is expansion. While you have a sizeable nationwide network, it seems like one of the key missing links is the West Coast. Do you see that as a possible target for M&A?
Gardner: We wanted to give ourselves two years after Paetec to integrate. It was transformative in terms of giving us that national footprint. We have converted our largest billing system and there's nothing from an integration focus that would prevent us from doing a transaction, but what we're most focused on is the enterprise space. With us there are some other challenges. We have to watch our leverage and dividend payout ratio and it has to be accretive. We have a very successful sales professional running the West region, which is our smallest region but it's our fastest growing region in terms of network sales. We're kind of growing into it so that would be a natural place to see more fiber and more data centers over time.