Windstream Earnings Illustrate Rural Telco Problem

Windstream Corp. has a top line problem, namely that its growth product segments are not increasing fast enough to offset weakness in legacy product lines.

That isn’t unusual in the fixed network business. But there is one particular matter of note: the big part of the decline is shrinking intercarrier compensation, not direct end user revenues.

That illustrates a strategic problem for rural telcos, namely the smaller percentage of support service providers will earn from regulatory-driven sources. That, in turn, is a big issue because there are few other sources of end user income (consumers or businesses and organizations) in rural areas.

Without the historic levels of regulatory support, most telcos would not be viable, in their current form.

In the second quarter of 2013, Windstream business service revenues were $913 million, a two percent increase, year-over-year.

Consumer broadband service revenues were $120 million, a six percent increase year-over-year. Still, consumer revenues overall declined three percent.

Strategic revenue, which consists of total business and consumer broadband revenues, grew three percent year-over-year and represents 71 percent of the company’s total revenues.

Wholesale revenues in the second quarter were $151 million, a decline of 13 percent from the same period a year ago due to lower intrastate access rates as part of intercarrier compensation reform implemented in July 2012, Windstream says. Lower switched access revenues from declining consumer voice lines also was an area of weakness.

But with the exception of strength in business services and consumer broadband, total revenues and sales were $1.51 billion, a decline of two percent year-over-year.

Windstream, which began as rural wireline provider spun off from Alltel Corp. in 2006, has been remaking itself as a data services and broadband provider for business and consumers, as traditional landline revenue continues to dwindle.

There are wider implications here for rural carriers, namely that shrinking regulatory revenues are starting to pinch. The long term problem is that there really are not consumer-generated revenues available to had, in much mass, in rural service territories.