(Image: Windstream)
Tony Thomas, president and CEO of Windstream, told investors during the Goldman Sachs Communacopia 2016 event that by reducing spending on special access circuits it can gain more control over its network costs to serve business customers.
“It’s really about aggressive network cost reduction by taking out network costs we pay other providers through better capacity planning and doing a better job leveraging our own network,” Thomas said. “We spend over $1 billion in the enterprise business unit with other carriers for lit services that we think should over time should migrate onto our network or minimize that footprint by having better hygiene about how we manage those costs.”
Thomas said while Windstream continues to expand its enterprise service portfolio by enhancing its product line with new cloud and Ethernet-based services, maintaining costs will help it increase margins and drive profitability.
“This does not mean that top line isn’t important, but when you look at the goals we have in the enterprise business unit, 90 percent of the outcome will be dictated by how well we do as a company in executing our strategy on cost take out,” Thomas said. “We have demonstrated that we have been making progress there.”
Part of the cost reduction includes collapsing the amount of circuits it purchases from other carriers.
“We hired 150 senior leaders in the company whose sole role in the company is to how do I take five circuits I am paying to someone else and go to two or completely eliminate those circuits by going on our own network,” Thomas said.
Even with all of the network cost reductions, Windstream has been aggressively expanding its on-net building footprint by extending its fiber into more key metro markets.
The service provider has expanded its metro fiber network into several markets, including into areas in Virginia, North Carolina and elsewhere. The company is also planning additional fiber network expansions in Atlanta, Minneapolis, Chicago, Cleveland and Philadelphia this year.
“Over time we’re going to become more of a facilities-based provider and that takes time,” Thomas said. “We’re winning deals today on our network that are not material to our financial picture, but what happens is as you build out fiber you get the spider web effect where if you lit a building the next building gets easier to light.”
While it will take time for Windstream’s on-net fiber efforts to have a major effect on revenues, the telco is seeing ongoing gains in the enterprise business.
In the second quarter, Windstream’s enterprise revenues were $491 million, up 3 percent year-over-year. Windstream noted that the enterprise contribution margin was $80 million, or 15.7 percent, an increase of $32 million, or 68 percent, year-over-year, and an increase of $9 million, or 13 percent, sequentially.
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