Windstream continues to move forward with its IPTV rollout initiative, but the telco's chief financial officer maintains it will focus on the larger markets it provides service to today where it sees strong cable competition.
Gunderman (Source: Windstream)
Speaking to investors during the Bank of America Merrill Lynch 2015 Leveraged Finance Conference, CFO Bob Gunderman said that it's hard to make a business case for IPTV in rural markets.
"You won't see us do IPTV in every single one of our markets because the economics are not that attractive in the very rural locations," Gunderman said. "I do think you'll see us deploy in the more suburban markets that we have like Lincoln, Neb., and Lexington, Ky., where the economics work and there's more competitive environments against our cable competition."
Outside of markets like Lincoln and Lexington, the majority of Windstream's markets are rural. The average density of its markets is typically 14 customers per square mile.
"In the largest markets we operate in like Lexington, Ky., Sugarland, Texas, and Monro, N.C., are our biggest markets," Gundermand said. "After that our markets get much smaller."
However, in the markets where it does deploy IPTV Windstream foresees two benefits: attracting former customers while reducing existing ones from churning to a cable provider.
"In addition to the flow share we'll win back for those customers who are not with us because we did not have video, we'll start to be in a position to win those customers back," Gunderman said. "At the same time, it very much helps us with our churn because when customers think about you as their anchor telecommunications and video provider to have video coupled with broadband it becomes a solid value proposition."
Following its initial debut in Lincoln, Windstream launched its service in Lexington this week. In those markets it will face off with incumbent cable operator Time Warner Cable (NYSE: TWC). It is initially targeting about 50,000 households in these markets.
Eligible customers will get the opportunity to purchase either a standalone IPTV product or double and triple play voice, video and data bundles with various channel packages.
What's making Windstream bullish about deploying IPTV in its larger markets is that it can leverage the ongoing enhancement of its last mile network.
Leveraging funding from its recent data center sale, the service provider has launched its $250 million Project Excel initiative to enhance its last mile network by installing VDSL2 network equipment to support up to 100 Mbps in more of its rural markets.
As part of that program, Windstream is upgrading its fiber-fed DSLAM infrastructure with VDSL2-capable equipment to deliver the higher speeds and a more robust backhaul network that can also support IPTV.
These upgrades enable Windstream to more cost effectively turn IPTV with minimal capital.
"IPTV for us is a very efficient capital project to deploy because we have upgraded the broadband plant in so many of these locations the way you get the video now is much more efficient," Gunderman said. "You can launch a market now somewhere in the range of $5 to $10 million in capex, which is a pretty low level of capex to launch to earn a return on in some of these larger locations in our footprint."
Although Gunderman said Windstream is seeing a positive response for its IPTV service in Lincoln, the service provider has not revealed how many customers have taken the service yet.
"We've started to take some share back in Lincoln and our customers have been pleased with what we have been able to offer," Gunderman said. "Lincoln was very pleased to have us as a competitor."
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