Windstream's business services remain flat, but IP-based data grows 3 percent to $414M

Windstream reported that its business service segment revenues remained flat year-over-year at $748 million, but the company is confident that a new marketing program and pricing initiatives will drive improved business revenue trends.

During the quarter, the service provider implemented new initiatives to enhance business sales and productivity and launched an expanded advertising campaign to increase brand awareness and highlight its integrated value proposition and customized service.

"In the business channel, we augmented in our marketing programs to strengthen sales and are seeing positive trends supporting our efforts to move up-market including 3 percent growth in enterprise customer locations and 8 percent growth in average revenue per business customer," said Jeff Gardner, CEO of Windstream, during the earnings call.

Due to the sales of IP-based data and next-gen services, data and integrated services revenues grew 3 percent in the first quarter of 2014 to $414 million. Meanwhile, data center and managed services revenues, which total approximately $30 million, increased 23 percent from the same period a year ago.

The company's enterprise customer locations grew 3 percent from the same period a year ago, while average revenue per business customer increased 8 percent year-over-year.

Similar to its peers CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ), the near-term growing pains of its wireless operator customers migrating off of legacy copper-based circuits and related network transport grooming drove down carrier revenue 3 percent to $162 million. However, the overall decline was partially offset by fiber to the tower revenue growth. During the quarter, Windstream deployed fiber to 95 towers, bringing the total number of towers completed to almost 4,600, with another 300 under construction.

Wholesale revenues in the first quarter were $142 million, down 7 percent from the same period a year ago primarily due to a decline in switched access revenue from lower intrastate access rates and fewer minutes of use.

And while many industry watchers are anticipating a slowdown in the fiber to the tower opportunity, Windstream says it sees existing customers purchasing more bandwidth at existing sites.

"As we look beyond 2014, we're very optimistic about our fiber-to-the-tower investments," said Tony Thomas, CFO of Windstream. "We're seeing very good demand from our wireless partners" and probably two-thirds are buying a 100 meg service, with an opportunity for the fatter pipes "to go all the way to 300 meg, so lot of revenue growth opportunities left in that fiber-to-the-tower investment."

Besides carrier and business services, Windstream reported that consumer broadband service revenues rose 2 percent year-over-year to $120 million. However, broadband subscriber additions were essentially flat, representing what Windstream was the best performance in the last six quarters. Overall consumer service revenues in the first quarter were $313 million, a decrease of 4 percent from the same period a year ago.

Gardner said that consumer channel growth was "driven by an increased focused on marketing and sales, as well as network enhancements and expansion."

He added that the telco has also built a foundation for future broadband growth thanks to the broadband stimulus funding it received to bring service to harder-to-reach rural areas.

"Broadband is now available to roughly 27,000 new homes as part of the broadband stimulus project," Gardner said. "We expect to substantially complete the stimulus buildout this year, reaching a total of 75,000 homes, which should provide additional opportunities for unit and revenue growth."

Overall first-quarter revenues were $1.5 billion in the first quarter, down 2 percent from the same period a year ago.

Shares of Windstream closed on Thursday at $9.03, down 7 cents or .77 percent, on the Nasdaq stock exchange.

For more:
- see the earnings release
- and the earnings transcript

Special report: Wireline telecom earnings in the first quarter of 2014

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