Windstream increases 25 Mbps penetration to 54% of ILEC footprint, but pricing moves impact consumer revenues

Windstream office
Windstream CEO Tony Thomas told investors during the company's third-quarter earnings call that more of its customers can get an average speed of 25 Mbps.

Windstream may still have some work to do to get back to positive broadband subscriber additions, but the service provider's Project Excel initiative to expand higher speeds to more customers is helping to turn that tide.

Tony Thomas, CEO of Windstream, told investors during the company's third-quarter earnings call that more of its customers can get an average speed of 25 Mbps.

Tony Thomas
Tony Thomas

“Our second business unit, the Consumer & SMB segment, continues to make strong progress, following the completion of Project Excel,” Thomas said during the earnings call, according to a Seeking Alpha earnings transcript. “We now have 54% of our ILEC footprint capable of speeds 25 meg or greater.”

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Thomas said that “since the beginning of the year, we have increased our penetration level of those higher speed tiers by almost 100%.”

Closing the churn gap

The service provider also further closed the broadband churn gap, shedding only about 8,400 customers during the quarter, an improvement from the 22,000 the telco lost during the second quarter and from the same period a year ago. Windstream attributed the broadband subscriber improvement to the promotional response it made to Charter Communications, its main cable competitor in many of its markets.

Windstream
Bob Gunderman 

“We began matching some promotional pricing offerings from a cable competitor in several key markets late in the second quarter, while also ramping up our marketing and advertising spend,” said Bob Gunderman, CFO of Windstream. “These actions helped combat the increase in competition we have seen since the beginning of the year. Additionally, we recorded our 11th consecutive quarter of Consumer ARPU growth.”

Despite these efforts, consumer service revenues still declined 3% year over year to $303 million. Deutsche Bank Research said in a research note that the consumer revenue “pressure was largely due to pricing moves WIN made (to better compete with Cable), which we expect to spill over into 4Q as well.”

CLEC, Enterprise shines, but wholesale challenges remain

From an overall financial perspective, Windstream saw mixed results across its consumer and commercial segments. While CLEC Consumer and SMB and enterprise revenues rose during the quarter, the service provider saw declines in the ILEC Consumer & SMB and Wholesale segments.  

Here’s a breakdown of Windstream’s key metrics:

ILEC Consumer & SMB: For the quarter, service revenue was $381 million, down modestly sequentially. Contribution margin was $201 million or approximately 53%. Margins were impacted by the typical seasonal increase in operating expenses during the third quarter, which was approximately $10 million. However, Windstream noted that margins rose by 90 basis points year over year.

Wholesale: This unit generated revenue of $173 million and a contribution margin of $140 million, or approximately 66% for the quarter. The wholesale segment continues to experience revenue pressure from declines in legacy services, which are being offset in part with growth products such as Ethernet and wavelength sales, as well as with sales into new customer verticals.

Enterprise: Revenue was $554 million and the contribution margin was $106 million or about 19%, an increase of 80 basis points sequentially and 170 basis points over the past two quarters.

CLEC Consumer & SMB: Revenue was $225 million and contribution margin was $77 million or approximately 34%. This segment was impacted positively with the addition of Broadview at the end of July.

Financials: Total revenues and sales were $1.5 billion and total service revenues were $1.47 billion in the third quarter, an increase of 11% and 12% respectively year over year. Operating income was $43 million compared to $129 million in the same period a year ago.