Windstream’s Thomas: On-net building fiber enhances our competitive business service stance

Windstream & EarthLink deep fiber nationwide network
Over the past month alone, the service provider has launched fiber expansions in three key cities.

As Windstream enhances its on-net fiber footprint, the service provider is putting itself into a position to be more competitive in the business services market.

Tony Thomas, CEO of Windstream, told investors that building out its own fiber it can differentiate it from cable and other CLECs by being able to control the service experience.

Tony Thomas
Tony Thomas

“First and foremost, it gives us increased competitiveness in the marketplace, so we can win more sales opportunities,” Thomas said during the earnings call. “We sell a lot of multilocation opportunities at Windstream in the mid-market segment, but being able to leverage our own network helps us improve the competitiveness of the sales force.”

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Over the past month alone, 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.

“One of the advantages Windstream has had with its metro fiber expansion is we had a lot of latent fiber in the network,” Thomas said. “For the one we did in Dallas last week, there were latent metro fiber rings so all we had to do was go in and put in the right metro Ethernet cable electronics into that network.”

Hybrid off-net, on-net mix continues

While Windstream has a clear desire to enhance its on-net reach, the near-term reality is that the telco still has a large amount of off-net facilities that it still uses to connect customers.

“In terms of the revenue mix, we haven’t really broken how much is off-net or on-net, but we’re still a pretty high percentage off-net,” Thomas said. “Obviously, as we sell new customers, we take every advantage we can to push more of those customers on-net.”

As the service provider continues to expand its on-net fiber network to serve more customers, Windstream sees itself delivering customers services in a “hybrid” mode of off-net and on-net fiber facilities.

“In some cases, it’s a hybrid approach where you have customers that are completely on-net,” Thomas said. “That’s obviously a desired outcome, but in our case that's not always possible, so we try to mix in off-net and on-net together to get the overall lower cost down and make us more competitive and have higher contribution margins.”

Whether the business services are going on-net or off-net, Windstream reported that fourth quarter enterprise business revenues were $486 million in the fourth quarter, down 2% year-over-year, and $1.96 billion for the year, an increase of 1% from 2015.

SD-WAN opportunities rising

As it expands its on-net fiber reach in more metro areas, a figure that will be complemented by its acquisition of EarthLink, Windstream is bullish on the SD-WAN opportunity.

Prior to completing the acquisition of EarthLink, Windstream and EarthLink released SD-WAN solutions and are already seeing growing customer interest. After launching its SD-WAN solution in September 2016, EarthLink recently announced that it had rolled out SD-WAN to 41 customers across 1,706 locations. The provider noted that 95% of these customers have opted for EarthLink SD-WAN Concierge, illustrating customers’ growing interest in EarthLink’s fully managed services that are built on personalized and proactive expert guidance.

Windstream, which came a bit later to the SD-WAN game in January, said it also seeing continual interest in the product.

Thomas said that the greater scale of the newly combined company will enable it to pursue a broader range of SD-WAN customers.

“I look at the combination of the SD-WAN portfolios of our two companies as being significantly improved by putting these two companies together,” Thomas said. “This merger will advance both of those.”

Thomas added that the combined SD-WAN opportunity will fully come into focus over the next year and enable it to enhance top line business service revenues.

“We’re putting a lot more investment into SD-WAN on a combined basis and I think there will be opportunity,” Thomas said. “I don't think that probably materializes as much in 2017, but I think you'll see it as we go out of 2017 and into 2018, and that’s what gives us confidence that we can get back to growing our enterprise business unit at the topline.”