When Windstream completes its Project Excel broadband expansion in the first quarter, the service provider will be able to provide speeds of 25 Mbps and higher to a larger portion of its customer base.
Tony Thomas, CEO of Windstream, told investors during its fourth quarter earnings that this milestone is important, especially since much of its market is in rural areas where there is no cable competition.
“Once Project Excel is completed in the first quarter, we will be able to offer premium speeds of 25 Mbps or higher to half of our footprint,” Thomas said. “Our focus will then transition to activating more customers and increasing our penetration where we have implemented premium internet access speeds.”
This will be quite a large improvement for Windstream since a large portion of its customer base currently subscribe to much lower speeds.
Thomas said Windstream can focus on enhancing customer ARPU and loyalty by driving more customers onto the premium broadband speeds.
“Currently 89% of our existing customer base subscribes to internet speeds of less than 25 Mbps,” Thomas said. “With the increase availability of premium broadband speeds, we have a significant opportunity to migrate customers to higher speeds, which will reduce churn and improve the customer experience.”
Wrapping Project Excel
At this point, Windstream has completed a large part of the physical network plant buildout process.
This called for Windstream to bring fiber to more of its remote terminals (RT) and equip those sites with Ethernet-enabled VDSL2 equipment to deliver services to homes.
“We came out of 2016 with a lot of the physical plant builds completed and now in the first quarter we’re going through and finishing off what we call the test and turnup activities,” said Bob Gunderman, CFO of Windstream. “We’re making a big push with our vendor partners to get that completed in the first quarter.”
Windstream's total capital spending for 2016 was $989.8 million.
Gunderman said that depending on how fast it completes the remaining pieces of Project Excel, some of the capital could be allocated in the second quarter.
“Where that capex lands in terms of completion, we could see some of that bleed over into the second quarter, but we’re excited about getting that wrapped up real soon,” Gunderman said. “The team is pushing hard to finish that off and get a greater set of speed capabilities into the hands of our customers.”
Enhancing consumer ARPU
As Windstream completes the roll out of Project Excel, the telco is confident that it will be able to enhance average revenue per customer (ARPU).
Consumer ARPU in the fourth quarter was $75.49, illustrating the eighth quarter of growth. Thomas said as Windstream turns on customers in the Project Excel markets, it is seeing consumer ARPUs rise.
“We have been turning up customers on Project Excel throughout 2016 and we have continued to make progress there,” Thomas said. “As we do turn up those assets, we’re definitely seeing the benefits flow through in terms of consumer broadband units ARPU.”
Thomas added that “we’re seeing better trends on our broadband units so that’s very encouraging and what gives us confidence as we lean into 2017 that we’re on the right path in our consumer and ILEC business.”
However compelling Windstream’s plans are the service provider still has its work cut out for themselves to grow broadband subscribers again.
Similar to earlier quarters, the service provider lost 12,000 broadband subscribers in the fourth quarter, ending the period with a total of 1.05 million total broadband customers.
Here’s a breakdown of Windstream’s key metrics:
Consumer and small business ILEC: Service revenues were $392 million in the fourth quarter, down 1% from the same period a year ago. Total 2016 revenues were $1.58 billion for the year, a decline of 1% from 2015.
Wholesale: Wholesale service revenues were $153 million in the fourth quarter, down 11% year-over-year. For the year, wholesale revenues were $631 million, a decline of 8% from 2015. Contribution margin was $109 or 71% in the fourth quarter and $452 million or 72% for the year.
Enterprise service: 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.
Small business CLEC service: Small business and CLEC revenues were $111 million in the fourth quarter, a decline of 16% year-over-year. On a yearly basis, Windstream narrowed segment losses to $484 million, a decrease of 13% from 2015.
Financials: For the fourth quarter, total revenues and sales were $1.31 billion and total service revenues were $1.29 billion compared to $1.43 billion and $1.39 billion respectively year-over-year. Operating income was $74 million compared to $132 million in the same period a year ago.
For 2016, total revenues and sales were $5.39 billion and total service revenues were $5.28 billion compared to $5.76 billion and $5.60 billion respectively year-over-year. Operating income was $515 million compared to $509 million in the same period a year ago. The company reported a net loss of $384 million or a loss of $4.11 per share compared to net income of $27 million or 24 cents per share a year ago.