Windstream Legacy Revenue Declines 'to Persist for Some Time'

Windstream’s management is taking the necessary steps to improve its competitive position; however, ongoing revenue losses are expected from its legacy business.

That’s according to a report released Friday by analysts at Jefferies. Windstream will announce its second-quarter earnings on Aug. 4.

In the consumer business, Jefferies said investments in Project Excel and network enhancements in late 2015 “significantly improve broadband speed capabilities, though we believe further investment is needed to narrow the gap with top cable competitors … and meet consumers’ growing demands.”{ad}

“In enterprise, we believe investments in fiber are appropriate to move more traffic on-net, enhancing competitiveness and bending the margin curve,” it said. “Targeted enterprise margins appear reasonable, accompanying what we believe is sustainable 3 percent-plus growth in the near-term.”

However, Jefferies pointed out that about 40 percent of Windstream’s revenue is tied to declining legacy business — small business ILEC/CLEC, carrier services and regulatory revenue. Service revenue is expected to decline 2 percent in 2016, “and while we could see some modest improvements going forward, we expect revenue declines to persist for some time,” it said.

“Importantly, like its peers, the mix shift in revenue pressures margins and free cash flow, and we anticipate margins to decline further, despite management confidence in margin stabilization,” it said.

For the first quarter of 2016, consumer and small business ILEC service revenues totaled $397 million, a 1 percent decrease from a year ago. Carrier service revenue was $163 million, down 7 percent year-over-year, driven largely by declining legacy services offset in part by sales of Ethernet and Optical Wave services using the company’s 100G fiber transport network.

Enterprise service revenue was $491 million, an increase of 3 percent year-over-year. Small business CLEC service revenue was $129 million, a 12 percent drop.