Windstream's Gunderman: We'll improve broadband speeds with VDSL2, bonding

Windstream plans to enhance the broadband speeds for customers by deploying fiber deeper into its last mile network, while leveraging VDSL2 and bonding to drive more bandwidth to consumers.  

Bob Gunderman Windstream CFO

Gunderman

Bob Gunderman, CFO of Windstream, told investors during the earnings call that it will continue to drive more fiber deeper into the network while deploying new VDSL2 equipment in the last mile network.

"Over the past couple of years, we have deployed fiber to improve capacity and improve the user experience and in 2015 we'll deploy additional electronics to fully realize the value of these fiber investments," Gunderman said. "Specifically, we will improve our high speed Internet capabilities through the enablement and deployment of VDSL2 bonding technology, which provides great speed availability."

By using VDSL2 and bonding, Windstream said it will be able to deliver up to 80 Mbps to homes, but being a copper-based technology, that means that actual speeds will depend on the state of the copper plant and how far a customer is located from the central office (CO) or a remote terminal (RT) location.

The service provider also said that it is on track with its plans to roll out its new Kinetic IPTV offering, beginning with 50,000 customers in Lincoln, Neb., this spring. Windstream will evaluate other markets in the next few years.

"We're also rolling out a complete IPTV entertainment offering called Kinetic in select markets, beginning with 50,000 homes in Lincoln, Nebraska in mid-2015," Gunderman said. "We plan to launch Kinetic in select markets in the next few years, targeting upgraded markets with fiber-enhanced capabilities that will enable us to leverage the existing infrastructure and realize incremental returns."

At the same time, the service provider is making progress with extending broadband services to more rural areas via the first phase of the FCC's Connect America Fund (CAF-I). The service provider plans to implement the second phase of the program in 2015, but did not reveal how much funding it will accept.

"We expect the CAF II program to be implemented in 2015," Gunderman said. "While the FCC has not yet finalized the CAF II amount, we anticipate the amount made available to Windstream could amount to $190 million annually."

Increasing broadband speeds overall continues to be a priority for Windstream.

Windstream ended the year with about 50 percent of its customer base capable of getting 10 Mbps, while another 15 percent can get 24 Mbps and above.

Gunderman said that the new real estate investment trust (REIT) structure will enable it to enhance its speeds further.

"The REIT transaction does allow us to accelerate our investments to improve these speeds over time to be more substantial in the next three years," he said. "The combination of CAF-I and some of the electronic investments for VDSL2 are going to be very nice programs that will drive significant returns on investments."

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

Consumer: The service provider reported that overall consumer broadband service revenues were $121 million, up 1 percent from the same period a year ago, and $483 million for the year, up 1 percent year-over-year. Windstream said that the increase in consumer broadband revenue was due to continued demand for faster speeds and additional services. However, overall fourth-quarter consumer revenues were unchanged from the same period a year ago at $316 million and down 2 percent for the year at $1.3 billion

Business: Enterprise and business service revenues remained flat at $747 million for the fourth quarter and $3 billion for the full year. Similar to other larger telcos, Windstream reported that data and integrated services revenues grew approximately 4 percent in the fourth quarter from the same period a year ago to $427 million due to demand for IP-based solutions and next generation data. One of the biggest growth areas for Windstream was data center and managed services, which grew 21 percent year-over-year to $34 million in the fourth quarter.

Wholesale and Carrier: Windstream's carrier service revenues declined 7 percent year-over-year to $181 million, due mainly to wireless operator customers migrating off legacy copper-based TDM circuits to Ethernet. For the year, carrier service revenues were $734 million, down 6 percent year-over-year.

Wholesale was a similar story with revenues declining 11 percent year-over-year to $104 million, a factor it said was caused by expected reductions from intercarrier compensation reform. For the year, wholesale revenues were $433 million, down 10 percent year-over-year.

Overall total revenues and sales were $1.4 billion in the fourth quarter, down 3 percent from the same period a year ago, and $5.8 billion for the year, a decline of 3 percent year-over-year.

Looking toward the rest of 2015, Windstream said it expects to see improved revenue trends in the enterprise, consumer and small business sectors while seeing the continuation of "some revenue pressure in the carrier business." The service provider expects total service revenue for the year within a range of a 4 percent decline to flat as compared to 2014 service revenue.

Shares of Windstream were listed at $8.15, down 43 cents or 5.01 percent, in Tuesday morning pre-market trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- hear the webcast (reg. req.)

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

Related articles:
Windstream proxy firm recommends voting for reverse stock split, LLC conversion
Windstream taps Gunderman to lead REIT company
Windstream to FCC: Competitive choice should not be reduced in IP transition
Windstream gets state regulatory greenlight for REIT
Windstream gets green light to bring IPTV service to Lincoln, Neb.

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