Windstream’s Thomas: CenturyLink/Level 3 deal is an opportunity and threat for our business services unit

Windstream Business
Windstream is also a participant in the recent wave of service provider consolidation.

Windstream isn’t afraid of CenturyLink’s pending acquisition of Level 3. As it sees it, the process of that acquisition could provide it with potential new business service revenue opportunities.

Tony Thomas, CEO of Windstream, told investors at the Deutsche Bank 2017 Media & Telecom Conference that it could be a diverse carrier choice for some business customers.

“It’s both an opportunity and a threat,” Thomas said. “Anytime you have M&A, people who bought networks that are carrier diverse suddenly they aren’t carrier diverse, so we have that opportunity.”

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Thomas added that “you’re going to have that same company over time that will have resources, but we’re very committed near-term to capture the opportunity that comes through this integration work.”

Windstream itself is also a participant in the recent wave of service provider consolidation. By acquiring EarthLink, Windstream will gain additional SD-WAN capabilities and 25,000 new fiber route miles.

Growing midmarket share

With its market share still being relatively limited, Windstream will continue to grow its presence in the midmarket business segment.

“The share varies by individual geography, but it’s pretty low to mid-single digits,” Thomas said. “We have a lot of opportunity for expansion of market share.”

Specifically, Windstream is seeing midmarket business opportunities with customers in two segments: customers that spend $5,000 to $100,000 and those that spend $100,000 to $500,000.

“We feel good about the midmarket,” Thomas said. “With the changes taking place across the telecom landscape, we think there’s a lot of opportunity in this market.”

Another key question: Is Windstream seeing cable operators becoming a bigger threat in the midmarket?

While Comcast and Charter have been making moves to expand their fiber networks to reach larger businesses, Thomas said he is not seeing them as a near-term threat.  

“We know that cable is trying to go up market, but we bump into them at the lower end of the midmarket, but they don’t have a big presence there yet,” Thomas said. “Today, the bigger competitors there are who you would expect like Level 3, CenturyLink and AT&T.”

Reducing access costs

As it grows its business segment, Windstream continues to target reductions in access costs.

Today, Windstream pays about $1.7 billion to rent last-mile circuits from other incumbent telcos to reach business customers that reside outside of its wireline network footprint.

To counteract the access cost issue, Windstream continues to expand its own fiber network. The service provider has launched fiber expansions in three key cities: Dallas, St. Louis and Cleveland. What’s interesting about these metro fiber expansions is that they leverage existing fiber facilities that were already in the ground.

Windstream says as it gets more customers onto its own network, it sees a clear path to 20% enterprise contribution margins in 2018.

“Access costs synergies come from day to day hygiene and execution,” Thomas said. “The second thing is we’re selling our own network assets more often and we have more profitable sales coming in, so the incremental sales opportunities we see have higher margins associated with them.”