Windstream facing ‘the largest predicament’ in the wireline industry: analyst

Windstream may be making strident efforts to turn its new service lines from UCaaS and SD-WAN into profitable business lines, but slower growth and revenue pressures from ongoing legacy declines are two near-term issues that are going to be hard to immediately overcome.

Barclays said in a research note that despite proactive measures to enhance its next-gen business services lines, Windstream faces lingering issues with its capital structure.

“Windstream seems to have the largest predicament,” Barclays said. “Despite the relief from cutting its dividend, the company still needs to address debt maturities coming due in 2020.”

Windstream reported in the third quarter that that SD-WAN and UCaaS picked up pace, making up 36% of total Enterprise sales during the quarter. However, near-term revenue pressures will continue to be seen in the wholesale and enterprise segments.

Due to declines in legacy services, Windstream’s wholesale revenues generated revenue of $173 million during the quarter.

Likewise, AT&T and CenturyLink continue to be challenged by legacy losses and weaker strategic services growth.

AT&T reported third-quarter business services revenues of $17.1 billion, down 0.7% from $17.8 billion in the same period a year ago. As seen by other incumbent providers, legacy services pressure revenues as the structural transition of business wireline continues.

Meanwhile, services like Ethernet and VPN drove gains in strategic business services. The service provider continued to make efforts to migrate more of its network functions to SDN. As of the end of the quarter, 45% of AT&T's network functions were virtualized. AT&T is beginning to generate significant cost savings from its NFV/SDN initiatives.

Still, AT&T and CenturyLink will continue to face an uphill battle in overcoming legacy losses with an ongoing pivot towards next-gen fiber and IP-based consumer and business services.

While CenturyLink has positioned itself as one of the largest players in the enterprise market with an even larger amount of metro and on-net building fiber for businesses, the telco its share of business revenue challenges in the third quarter. Business revenues were impacted by the sale of its colocation assets and the decline in legacy data and integration revenues. As a result, CenturyLink’s business revenues declined 11.2% year over year to $2.17 billion.

CenturyLink’s enterprise strategic revenues grew 4.2% and high-bandwidth data services revenues increased 5.5% year over year.

But these issues aren’t relegated to AT&T, CenturyLink and Windstream alone.

Barclays says that overall wireline providers have collectively seen challenges throughout 2017. 

“This past year has been challenging for the traditional wireline industry,” Barclays said. “While ongoing declines in legacy services such as voice and low-bandwidth data services are not new, the combination of accelerated legacy losses and weaker than expected growth in strategic initiatives have continued to pressure the sector.”

Barclays added that these issues “coupled with the prospect for continued competition from higher capacity network operators (i.e. cable and fiber providers), debt-laden capital structures and the specter of technology disruption (e.g. SD-WAN) suggests that these structural challenges are unlikely to abate anytime soon.”