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August 30, 2013

Windstream Forms Holding Company - The Issue is 'Why?'

Windstream announced it has formed Windstream Holdings, Inc., which will become a new publicly traded parent company of Windstream Corp. and its subsidiaries. The new company will trade on the Nasdaq Stock Exchange under the existing Windstream ticker symbol "WIN" beginning Sept. 3, 2013.

Windstream says, “The new ownership design will enhance Windstream's corporate structure and provide greater financial and strategic flexibility in the future.” Among the expected benefits are an enhanced credit profile and greater financial flexibility.

One advantage is that assets can be bought and sold without necessarily having to sell the whole company. The other advantage is that assets of different types (regulatory rules) can be bought or sold more easily as well.


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Windstream has been among the more active asset acquirers in the independent telco business, but recently has shifted its profile by focusing on business customer operations.

More telco consolidation is widely expected. The bigger issue is who will be buying. And there might be lots of assets available. AT&T, for example, thought about selling significant numbers of rural access lines, before concluding that there were no buyers.

And some observers believe even Verizon might be willing to sell all of its fixed network access lines, given the fact that only about 14 percent of its total revenue is earned from fixed network operations of all types.

Many would say rural and independent telcos face huge challenges. For starters, “wireless now is the preferred consumer choice” for voice and messaging, and might begin to be a more-logical choice even for broadband access.

One immediate consequence is that there is less demand for fixed network voice lines and usage. The corollary is that it is hard to grow revenues. New services (video entertainment and high-speed access) help.

But cash flow is diminishing.

If you wonder why AT&T and Verizon Wireless have concluded that Long Term Evolution makes sense everywhere they cannot afford to invest in fiber to the home, the reason is that there simply are places where fiber to the home provides a negative rate of return.

Mergers will help, to the extent that such transactions offer the advantage of taking cost out of the back end or overhead parts of the business.

Historically, a few firms in the independent telco industry have been acquirers. Windstream and Frontier Communications, or Fairpoint, come to mind. But those firms now are concentrating on rationalizing what they already have, so are essentially out of the market for further significant acquisitions.

That leaves only “merger of equals” opportunities on a smaller and local scale, for the moment.

The longer term issue is not so much whether smaller telcos will merge. They will. The bigger issue is what happens to rural AT&T and Verizon assets.




Edited by Alisen Downey


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