Uncertainty Threatens Windstream Dividends

by Luke Jones  on Monday, Nov. 18, 2013 12:00 am  

Jeff Gardner, CEO of Windstream, says the company has transitioned to new revenue streams, but not all analysts agree. (Photo by Russell Powell)

“Clearly, this transition enables Windstream with the most sustainable cash flow going forward,” he said.

But much of that transition stems from the company’s spate of acquisitions during the past several years. Those acquisitions have piled up expenses, particularly the $2.3 billion purchase of Paetec Holding Corp. of Fairport, N.Y. While those acquisitions have allowed Windstream to maneuver into the managed services market, they’ve also built up debt and necessitated drawn-out integration processes. Paetec, for example, won’t likely be fully integrated until 2014 at least, Thomas said.

That’s why, in the company’s latest earnings release, CEO Jeff Gardner said one of the company’s three major goals is optimizing its cost structure or, more to the point, paying its debts.

Its other two goals, Gardner said, are to invest in capital growth opportunities and keep increasing revenue.

That increase, Thomas said, is going to come from how well Windstream can dress up its business services.

“A lot of companies can sell a pipe,” he said, referring to broadband connections. “A pipe is just a pipe.”

What’s being sold on top of the pipe, he said, is key.

“Whether it’s cloud or security or so forth,” Thomas said, “bandwidth is very simple. What we’re seeing is a confluence of IT and telecom. When they come together, we’ll have a different skill set in the marketplace to be successful.”

Access is still important, Thomas said.

“Windstream has the fifth-largest fiber network in the country,” he said, noting that it’s also key for Windstream to connect its disparate fiber networks and add managed services to those networks.

The company’s many new data centers tie into its shifting focus as well.

“We’re using our pipes to provide data center services,” Thomas said. “That’s an opportunity. From a larger perspective, this overlap of IT and telecom, this macro-trend, is ultimately what we’re trying to capture. That combination of IT and pipes. The confluence of network and managed services.”



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