Windstream’s SD-WAN, UCaaS pivot gains momentum

Cowen said in a research note that SD-WAN is “still too small to move the needle but a compelling migration for legacy customers.”

Windstream is making progress in its business segment by driving more of its customers to its newer SD-WAN and unified communications as a service (UCaaS) platforms, but legacy service declines will remain a challenge.

Speaking to investors during its third-quarter earnings call, Tony Thomas, CEO of Windstream, said that SD-WAN and UCaaS made up 36% of total Enterprise sales during the quarter.

Tony Thomas
Tony Thomas

“We signed several new business customers to large contracts during the quarter,” Thomas said. “Our sales force is generating strong traction with our new product sets, and our sales pipeline continues to expand

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While Windstream has a path to migrate customers from legacy MPLS and TDM circuits to SD-WAN and UCaaS, the issue is not technology but rather an understanding of how the products themselves work.

“The beautiful thing about our solutions is the technologies and their ability to be converted inside the company has been vastly simplified through the way in which we're rolling this out within Windstream,” Thomas said. “So, it's not a technology issue. It really is a customer education issue and a sales force training issue. The product itself is ready to go, and we have a clear path in terms of migration from legacy technologies to OfficeSuite as well as SD-WAN.”

Analysts acknowledged that Windstream has set a new path, but warned that it’s too early to see a material impact on its broader revenue base yet.

Cowen said in a research note that SD-WAN is “still too small to move the needle but a compelling migration for legacy customers.”

SD-WAN, MPLS to coexist

In transitioning its customer base from MPLS to SD-WAN, Windstream is also keenly aware of fears that it could lose profitable MPLS revenues.

While the service provider admits that some revenue cannibalization is inevitable, Thomas said that the company will end “up equal to or greater as we go through that technology transition.” Instead, Windstream foresees that many businesses interested in SD-WAN will take two main paths: go from full MPLS to SD-WAN or from full MPLS to hybrid SD-WAN.

“We're moving customers from full MPLS to SD-WAN or from full MPLS to hybrid SD-WAN, which gets the best of elements of MPLS with SD-WAN,” Thomas said.

But SD-WAN is only one part of the next-gen business service solution. The service provider sees opportunities to gather new UCaaS and security share.

By purchasing Broadview, Windstream became the nation’s third largest UCaaS provider. Meanwhile, Windstream has expanded its security solutions that Thomas said, “kind of wrap around those solutions.”

Thomas would not say how much it has earned in SD-WAN revenues, but noted that delivering SD-WAN is more cost effective than MPLS because it can aggregate multiple broadband links.

“The solutions have been more profitable,” Thomas said. “That’s because Windstream is using a combination of access methods when it comes to SD-WAN versus historically when we sold an MPLS deal, we had to use another carrier's Ethernet service, which is typically quite expensive.”

Thomas added that “SD-WAN is a larger proportion of our base, but in terms of sales, it's contributing and we expect it to contribute substantially more as we move into the fourth quarter.”

New business structure

As Windstream expands its SD-WAN and UCaaS capabilities, the service provider has also realigned its business unit structure by combining its operations into two main units: Cloud & Connectivity and Consumer & SMB. Windstream has also consolidated the Enterprise, CLEC/CSMB and Wholesale segments into a new business unit titled Cloud & Connectivity.

Thomas said that this latest change is about making the company run smoother and giving customers a more consistent way to interact with Windstream.

“This change will enable us to accelerate our path to revenue growth, improve the customer experience and simplify our company,” Thomas said. “These changes are based on the basic tenet that organizational structure should be nimble and follow the vision and strategy. The anchor of our vision is based on the customer experience that is not changing.”

Thomas added that the company’s drive to leverage new technologies such as SD-WAN, OfficeSuite and new SDN-based products like SDNow will enable the provider to differentiate itself from its competitors.

“We are focused on leveraging these products across all of our customer segments to accelerate our path to revenue growth, while providing an end-to-end experience that delights our customers and is both repeatable and cost effective,” Thomas said. “Having three different organizations doing that was no longer optimal. We will still have our customer segmentation focus and the appropriate support structure behind it to provide an intentional, consistent and proactive customer experience for each segment of our customers.”