Windstream sees SD-WAN, UCaaS as a recipe for SMB/CLEC growth

Windstream Business

Windstream says it can use SD-WAN and Unified Communications as a Service (UCaaS) to potentially bolster the revenue-challenged SMB/CLEC business unit.

RELATED: Windstream’s $1.1B EarthLink deal adds complementary assets, but integration, service challenges remain

Tony Thomas, CEO of Windstream, told investors during the recent Morgan Stanley 2016 Leveraged Finance Conference that having reorganized the SMB/CLEC unit, the service provider can now look for new revenue growth opportunities.

“With SMB/CLEC business in 2016 we focused on in 2016 stabilizing the cash flows in the business,” Thomas said. “As we pivot to 2017, we’ll look to grow this business with really more of a simple, crisp go-to market strategy and I think you’re going to see us leverage UcaaS and SD-WAN.”

While Windstream has been developing its own SD-WAN offering, the service provider’s pending acquisition of EarthLink will accelerate its effort.

Following the launch of its SD-WAN offering in September, EarthLink has already seen customer interest.

EarthLink signed multiple customers for SD-WAN, including a 400-restaurant contract with national restaurant chain TGI Friday's. EarthLink is providing a full suite of services to TGI Friday's including SD-WAN Concierge, MPLS, Cloud Express and Hosted Voice.

“One area that EarthLink had been very focused on was SD-WAN and EarthLink is ahead of Windstream from a product deployment perspective,” Thomas said. “Windstream is on a similar path to deploy SD-WAN in the fourth quarter and the combined company will be in a great position with this new capability.”

SD-WAN allows business customers to use any broadband or last-mile connection, including those provided by Windstream or a third-party connection, but as one combined company they will be able to take advantage of a larger array of on-net fiber connections. What this means is that Windstream can better control the customer experience while reducing off-net service costs it pays to another service provider for wholesale last-mile access to business locations.

Windstream estimates that when it completes its acquisition of EarthLink, the combined company will achieve $50 million in annual synergies around network access costs.  

This is due to Windstream’s efforts to build out more fiber to business locations as a means to cut $1 billion in costs it pays to other carriers to carry its last-mile traffic into business locations.

“A lot of these synergies are actually coming from costs that Windstream pays that will be going away as we take those costs off of another provider’s network and move those onto EarthLink’s network,” Thomas said. “We’ll do the same where EarthLink is paying another provider by moving them onto Windstream’s own network.”

Being able to grow the SMB/CLEC revenue by offering SD-WAN and other services will be important for Windstream as it looks to drive profitability in a segment where revenues have struggled, a trend that was evident in its third-quarter results.

Windstream’s third-quarter SMB/CLEC service revenues were $119 million, down sequentially from $125 million in the second quarter. Through targeted price increases and incremental sales of additional services, average revenue per user increased 5% year over year.