Windstream says UCaaS, SD-WAN make up 30%-40% of enterprise revenues

Windstream's CFO says SD-WAN and UCaaS are becoming a bigger portion of its overall business services mix. (Windstream)

Windstream may still be a bit early in the SD-WAN and unified communications as a service (UCaaS) games, but the service provider is finding that its bets are gaining momentum with more customers migrating to these newer solutions.

Bob Gunderman, CFO of Windstream, told investors during the at the J.P. Morgan 2018 Global High Yield & Leveraged Finance Conference that SD-WAN and UCaaS are making up a larger portion of its business revenue mix.

Bob Gunderman

“Roughly 30%-40% of the sales that we are making every single quarter within our business segment today are coming from SD-WAN, UCaaS and on-net services,” Gunderman said. “As you look at the future of our business, the path to a stronger, more profitable Windstream comes through those services.”

RELATED: Windstream rebrands Enterprise, Wholesale divisions, focuses on customer evolution

While he did not provide any specific revenue numbers, Gunderman said SD-WAN and UCaaS will make up half its business sales going forward.

“We think we can get to a roughly 50% penetration of sales in 2018 and beyond and we’ll continue to push for those goals,” Gunderman said.  

Reducing access costs

By offering SD-WAN over broadband circuits and moving more customers onto its own on-net fiber network, Windstream can simultaneously control costs while enhancing the customer experience.

Unlike other larger incumbent telcos, a large majority of Windstream’s business customers were served by third-party circuits from other providers outside of its ILEC territory.

As Windstream transitions more of its customers from legacy MPLS to SD-WAN, Gunderman said that leveraging readily available copper and cable broadband circuits enables it to lower costs for itself and the customer.

“In the SD-WAN world, the ability to provision the SD-WAN service over a commercial broadband connection, whether that’s an ILEC DSL connection or a cable broadband connection, allows us to lower the access costs,” Gunderman said. “The lowering of that access cost can be shared with the customer, which is why the customer would want to take it.”

Gunderman said that for Windstream, “it would be a better gross margin because the cost of access we would need to incur to provision that customer would be more attractive.”  

By adding UCaaS to the mix, Windstream could drive margins even further because the service runs over its own network.

“When you overlay UCaaS where we own the intellectual property for the Office Suite technology, the gross margins can go up considerably because we would not be paying anybody for third-party access,” Gunderman said. “Not only do we think this will be a more desirable product set in the marketplace, but we think it’s a better financial answer for Windstream.”

Multiple SD-WAN options

When Windstream works with customers transitioning to SD-WAN and UCaaS, the service provider allows customers to choose from an option where the telco manages everything or the customer brings its own connections.

Given the diversity of customer needs, Windstream allows various configurations.

In a managed-network configuration, Windstream not only provisions the SD-WAN platform at its premises, but also would procure the associated broadband connections available in each market.

“We’ll initially tell a customer that we can do everything to get the most amount of revenues and the most amount of management oversight of the customer relationship as we can,” Gunderman said. “Our initial pitch is we’ll provision the network based on capacity needs and the flexibility they want in their network whether that’s a hybrid MPLS and SD-WAN solution at their branch locations.”

The service provider is also allowing customers to effectively bring their own broadband circuits from a cable company or ILEC.

“If a customer said they want to provision or procure those access services from another carrier and have Windstream be the network provider of SD-WAN or UCaaS, we would act as an access agnostic provider,” Gunderman said. “This means we would take a broadband connection, an MPLS connection or whatever the connection might be to aggregate those services and construct those services for the customer.”