Windstream becoming RLEC/CLEC hybrid

Windstream's acquisition of NuVox this fall is leading the company down the path of becoming a hybrid RLEC and CLEC.

Windstream CEO Jeff Gardner has said that he wanted to increase the company's revenue from business customers from about a third of its total revenue to half over the next five years. Its acquisition of privately held CLEC NuVox in November could cut that down to something more like two years.

Windstream is paying about $643 million in cash and stock for NuVox, or roughly 1.1 times its annual revenue. The deal will boost Windstream's top line by roughly a third, giving the rural carrier some 90,000 customers across 16 Midwestern and Southeastern states — all businesses.

When the acquisition closes in the first half of next year, adding some $560 million in revenue, about 40% to 45% of Windstream's total revenue will come from business customers. Though Brent Whittington, chief operating officer, doesn't believe it will hit the 50% mark before the end of 2010, he said residential access line loss could help close that gap fairly quickly.

More importantly, Whittington said, once the acquisition closes, more than half of Windstream's revenue will come from the two areas it is focusing on to grow its business going forward: business services and broadband.

The NuVox acquisition is just the latest milestone in Windstream's evolution toward a hybrid CLEC/RLEC model. The company had about 130,000 CLEC access lines in four states (Arkansas, Nebraska, North Carolina and Pennsylvania) before its acquisition of D&E Communications this year gave it 47,000 more.

Other RLECs, such as Consolidated Communications, have found that acquiring CLECs combines the best of both worlds: the CLEC's top-line growth and the RLEC's stability. But access line loss has made this combination more important for many rural telcos.