Windstream rejects wireless, targets broadband

After strong consideration, Windstream, formerly Alltel’s wireline business, decided against pursuing a wireless resale service offering and said during its third-quarter earnings report today that it would instead concentrate on creating bundled packages that include broadband and digital TV.

While pro forma revenues of $795 million for the quarter were essentially flat from a year ago, Windstream added 55,000 broadband customers and brought its total base to more than 603,000, a 48% from a year ago. Average revenue per customer increased 2.4% over last year to $75.79. However, the company’s access lines declined by 4.2% to 3.29 million.

Windstream’s GAAP results reflect the Alltel wireline business for the full third quarter and the VALOR business, which it acquired, starting July 17. Comparisons to last year are for Alltel’s wireline business. The company is on track to realize its projected $40 million in net synergies in 2007.

Windstream also ended the quarter with $370 million in cash while completing most job reductions, consolidating Valor call centers, converting systems and launching the Windstream brand.

“Overall, we are very pleased with the third quarter and the momentum we have created, particularly given the substantial separation and integration efforts that took place,” said Jeff Gardner, president and CEO of Windstream.

As for the balance sheet, Gardner said, “We have ample flexibility to pursue strategic opportunities should they arise. We will be disciplined and favor rural properties with potential for cash flow accretion.”

Windstream’s most aggressive pursuit will be broadband and digital TV customers, which the company sees as the best hedge against cable competition.

“We believe that the company that owns the broadband pipe into the customer’s home has a tremendous advantage, and we were very cautious not to do anything to get in the way of that,” Gardner said. “If we can get broadband and digital TV into our customers’ homes, we will make it very difficult for the cable companies to take our customers.”

Keith Paglusch, chief operating officer at Windstream, said the company is on track to achieve its goal of 80% broadband addressability by the end of the year.

“Bundling two or more products is a key strategy for Windstream. We have seen that churn is significantly reduced when broadband is added to the bundle and we expect a further reduction [in churn] with Digital TV service,” Paglusch said.

The concentration on bundling these services drove the company’s decision in wireless.

“Over the past several months we have carefully reviewed the potential benefits and associated costs and complexities of entering the wireless business as a reseller,” Gardner said. “Our conclusion, at least for the time being is that wireless would not materially benefit our bundle or meaningfully reduce access line losses. Rather, at this time, we believe an emphasis on driving broadband and digital TV penetration is more important to customer retention, particularly in front of a competitive cable voice offering.”

He said Windstream will continue to evaluate developments that may warrant a change in its view on wireless.

Gardner also stressed his support for the new inter-carrier compensation solution known as the Missoula Plan. “Windstream has agreed to support the Missoula inter-carrier compensation reform plan, which is a significant step in reforming the outdated inter-carrier compensation system. We believe this plan or one similar to it will reduce the level of regulatory risk and overhang in the RCLEC sector,” he said.