Windstream sheds 16K broadband subs in Q2, but says speed enhancements break decline trend

Highlight from Windstream's Q2 2016 earnings report. (Source: Windstream investor relations)

Windstream continued to see pain in its broadband subscriber base during the second quarter as it lost 16,200 subscribers, but the company maintains that the speed enhancements it is making on its existing copper network will help it right the ship this year.

On a year-over-year basis, the service provider lost 45,000 broadband subscribers, ending the period with over 1.07 million subscribers, down from 1.21 million subscribers in the same period a year ago.

Bob Gunderman, CFO of Windstream, told investors during the telco’s second earnings call that what led to the broadband subscriber decline was a drop in standalone broadband customers and new pricing.

“Broadband units declined more than expected during the quarter,” Gunderman said during the earnings call. “We implemented a pricing action on our standalone broadband product which resulted in modestly higher churn.”

Gunderman added that “we expect to return to a churn rate in the third quarter.”

Despite the subscriber and consumer revenue declines, Windstream saw customer ARPU rose 1.2 percent sequentially and 5.2 percent year-over-year due to penetration gains across its internet service tiers, improved modem rental attachment rates and higher bundle customers.

While still a relatively new part of its service portfolio, Gunderman said that more of its customers are purchasing 50 and 75 Mbps services in the markets where these options are available. Nearly 23 percent of its customer base can get access to the 50 Mbps service tier, one that’s been made possible by upgrading the fiber-fed remote DSLAMs in its last mile network.

“We continued to see attractive adoption rates of internet speeds of 50 Mbps and higher from new and existing customers,” Gunderman said. “The attachment rates were approximately 38 percent or new activations that qualify for new premium speeds.”

But Windstream is not taking the broadband declines lying down.

Besides equipping its remote DSLAM cabinets to support VDSL2, the service provider is rolling out 1 Gbps FTTH in select markets and also began a G.fast field trial in Lincoln, Nebraska targeting initially multi-dwelling units.

Tony Thomas, CEO of Windstream, said all of these elements will help it meet its broadband growth targets.  

“When you think about the playbook we’re going to run we’re going to deploy multiple paths to achieve our goals,” said Thomas. “We’ll be deploying fiber to the home -- and we did launch 1 Gig services this year -- but the real opportunity we have is to continue to upgrade our copper infrastructure, shorten loop lengths to give us faster speeds and by employing other technologies like G.fast and vectoring you get more data over those shorter loops.”

Thomas added that the benefits of these technologies will have different effects depending on whether they are deploying in a rural or urban environment.

“The outcomes you should expect will vary by geography,” Thomas said. “In our larger urban areas it’s a different competitive environment than it is in our rural markets where the competition is different, but you’ll see us employ both because we think we can gain greater market share.”

Here’s a breakdown of the telco’s key metrics:

Consumer and small business ILEC: Consumer and small business ILEC revenues were $395 million, down 2 percent from the same period a year ago. Consumer service also declined 1 percent year-over-year to $311 million. Driven partly by higher consumer adoption rates of premium Internet speeds, consumer average revenue per household rose 1 percent sequentially and 5 percent year-over-year.

Carrier services: Wholesale revenues were $160 million, down 7 percent year-over-year. Core carrier and wholesale revenues declined $1 million sequentially to $149 million.

Enterprise: Enterprise service 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.

Small business CLEC: Small business CLEC service revenues were $125 million, down 12 percent year-over-year. Windstream said that small business CLEC contribution margin remained steady sequentially at $41 million, or 33 percent.

Total second quarter revenues and sales were $1.36 billion and total service revenues were $1.33 billion in the second quarter compared to $1.42 billion and $1.38 billion respectively year-over-year.

Shares of Windstream were listed at around $9, up 1 cent, or 0.07 percent in Thursday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- listen to the earnings call (reg. req.)  

Special report: Tracking wireline telecom earnings in Q2 2016

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