Windstream's Thomas: Higher speed broadband drives up Kinetic IPTV attachment rates

Windstream may be early on in its Kinetic IPTV rollout with service available in a handful of markets, but the service provider is finding that were it offers the service with higher speed broadband take rates are rising.

Today, Windstream launched Kinetic service in three markets -- including Sugarland, Texas, Lincoln, Neb. and Lexington, Ky. – with plans for one more market this year.

Speaking to investors during the first quarter earnings call, Tony Thomas, CEO of Windstream, said that a growing number of its IPTV customers are purchasing broadband as well.

"The take rates and the broadband pull through of our new customers is encouraging," Thomas said. "I think some of the early learnings are that our higher internet speeds coupled with Kinetic can be more powerful."

Thomas added that "when we launch higher speeds we have seen better attachment rates with Kinetic and we're pleased with where we are at."  

By conducting software upgrades on its existing last mile network equipment, Windstream can now provide speeds of 75 Mbps and greater to an additional 200,000 locations that Thomas said "were previously capped at 50 Mbps."

However, Windstream will have its work cut out as it lost 40,000 broadband subscribers to end the quarter with a total of 1.09 million subscribers.

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

Consumer and SMB ILEC: Consumer and small business ILEC service revenues were $397 million, a decrease of 1 percent from the same period a year ago. Driven by growth in high-speed Internet bundle revenue, consumer service revenues were $312 million, an increase of approximately $1 million from the fourth quarter.

Bob Gunderman, CFO of Windstream, said the company is seeing greater broadband penetration across all of its speed tiers, including its new 50, 75 and 100 Mbps offerings that it's rolling out as part of its Project Excel initiative.

"We're seeing attractive adoption rates of premium internet speeds both from new and existing customers," Gunderman said. "For customers activating new services, premium speed attachment rates are more than 35 percent of gross additions."

Carrier Services: Carrier service revenues were $163 million, down 7 percent year-over-year due to declining legacy services offset in part by sales of Ethernet and optical wavelength services utilizing the company's 100G fiber transport network. Windstream has been expanding the focus of its Carrier Services business to pursue opportunities with over the top content providers, cable operators and financial companies.

"The carrier strategy is to expand our networks, products and customer verticals to capture new sales and stabilize revenues," Thomas said. "The carrier business leverages our 125,000 route miles of fiber, including our 100G long-haul core and regional express network, which is underutilized and we're strategically expanding attractive growth potential such as carrier hotels, international landing stations, and data centers to drive new sales."

Thomas added that "we augmented the Carrier Services sales team to focus on high growth verticals including content providers, international carriers, and cable operators."

Enterprise and small business CLEC: Enterprise service revenues were $491 million, up 3 percent year-over-year. The enterprise contribution margin was 13.7 percent, or $71 million, representing what Windstream said was a 36 percent year-over-year increase. Alternatively, small business CLEC service revenues were $129 million, down 12 percent year-over-year.

For the quarter, Windstream's total revenues and services revenues remained flat year-over-year at $1.37 billion and $1.34 billion, respectively.

Windstream today reiterated the company's previously provided financial guidance for the year with total service revenue of $5.3 billion to $5.4 billion and adjusted OIBDAR of $1.90 billion to $1.95 billion.

For more:
- see the earnings release

Special report: Verizon and Frontier begin new transitions: Tracking wireline telecom earnings in Q1 2016

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