Windstreams Executive Shake-up: Why Now, Whats Next

The man who reshaped Windstream from a rural LEC to a provider focused on business services has resigned, in an executive shakeup that raises two key questions. First, what’s next for Windstream? The company spent years redefining itself through breakneck-speed acquisitions but, since 2011, has come down from the high. Second, how does the change affect Windstream’s indirect channel? While the answers may not unfold right away, it is possible to put forth some educated guesses.

On Thursday, Jeff Gardner stepped down from his post as president and CEO of Little Rock, Ark.-based Windstream after nine years on the job. Windstream replaced him with Tony Thomas, the financial wizard behind the impending real-estate investment trust (REIT) spinoff. Thomas served as Windstream’s CFO for five years, and had worked as president of the REIT operation since October. Expect Gardner to stick around, though. He’ll stay on as senior adviser to Thomas and as a board member through Feb. 1, to help with the transition, Windstream said.

Meantime, Bob Gunderman steps in to fill Thomas’s CFO shoes. Gunderman took over as interim CFO on Oct. 1. He’ll continue to oversee treasury duties while Windstream looks for a permanent executive for that role. Windstream no longer uses a COO – the company eliminated that position altogether in August after Brent Whittington said he was leaving.

Gardner has been a Windstream installment since 1998, when the company was Alltel, a longtime ILEC. He was part of the team that spun off Alltel’s decades-old landline division and merged it with VALOR Communications Group to create Windstream in 2006. After that, he orchestrated the purchases of NuVox, Hosted Solutions, KDL, Norlight and PAETEC, and more, all of which turned Windstream, rooted in residential services, into a provider of business communications, including hosted and cloud platforms.

For the past three years, however, Windstream has suffered a hangover from its high-flying days. Integration of multiple acquisitions often proved tougher than expected as, at the same time, the company lost revenue from legacy voice services faster than it could ramp up its enterprise offerings. That’s when Windstream started to investigate the possibility of converting its telecom assets into an independent, publicly traded REIT. Windstream proposes to conduct a tax-free transaction that would lower its debt by $3.2 billion, boost cash flow and, as a result, speed up network investment and please shareholders.

Cindy Whelan, principal analyst of business network and wholesale services for Current Analysis, said the progress on the REIT front may have spurred the changing of the guard at Windstream.

“Tony Thomas created the REIT structure, and the board may feel that he is in a better position to manage this new model,” she told Channel Partners.

Windstream expects to close the REIT deal in the first quarter of 2015.

As for Gardner’s legacy, he accomplished what he aimed to do: “[T]ransition the company to an enterprise service provider, and…adopt a new structure and approach to try to get top line revenue growth to a positive trajectory,” said Whelan.

“I think that the acquisitions that Windstream has made under Mr. Gardner’s leadership have brought the company the resources necessary to support their move deeper into the enterprise market,” Whelan added. “They have the foundation in place to build up their set of cloud and managed services for enterprise customers.”

In a press release, Gardner agreed, but noted the time has come for him to leave the work to someone else.

“[A] change in perspective is needed in order to accelerate the pace of change within the company and to more effectively respond to the rapidly evolving needs of our customers,” Gardner said.

A Windstream spokesman declined to elaborate on Gardner’s statement.

So what’s next for Windstream? Indeed, Gardner leaves at an auspicious time. Windstream grew under most of his tenure, but it has struggled since 2011. Just this year, Windstream’s stock price has fallen about 17 percent, since July, and hundreds of people have been laid off. In fact, another 350 lost their jobs on Dec. 1 after Windstream reported a 74 percent drop in third-quarter profit as it pays more for merger and integration costs, and as revenue fell. Thomas and team have to tackle some messy financial and personnel problems, even as they continue to push business services adoption.

That last part may prove pretty easy. Business services stood out as the bright spot in Windstream’s third-quarter report, contributing $752 million in revenue. Judging by that alone, there’s no reason to think Windstream won’t maintain its business services focus under Thomas.

“Windstream sees its sweet spot as the gap between the small businesses targeted by cable operators with inexpensive voice and Internet services and the large enterprises that typically look to AT&T or Verizon,” Whelan said.

Such activity buoys the argument for Windstream continuing to sell through the channel. Yes, the provider axed 230 agent contracts this fall, but those partners were not meeting their obligations, channel chief Jeff Howe explained to Channel Partners in November. The remaining partners are doing well delivering next-gen services to businesses, he said.

“Emerging technology trends, including managed services, virtualization, cloud and big data, are especially rewarding for agents right now,” he said.

Because of such developments, Whelan predicts that Windstream’s new executive lineup will only impact the channel in a positive way.

“My understanding from Windstream is that the channel represents a good revenue stream for them,” she said. “In a recent meeting, they said that revenue from the channel has increased around 15 percent since last year. …They’ve had success working with VARs and master agents to gain entry to new accounts, which will help them extend their brand, so I would expect things to remain steady for the channel, or perhaps increase as Windstream looks for opportunities to increase revenue.”