Windstream Deserves More Credit

August 18th, 2011 by · 1 Comment

In the wake of Windstream's announced intention to buy super-CLEC PAETEC, much of the media coverage focused on their desire or need to bulk up their presence in the enterprise space like everyone else.  But Windstream's move is more bold than that in some ways, because they are doing something that the top three ILECs have managed to avoid doing for three decades now:  compete with each other in a meaningful way outside of their legacy copper plant.

Now obviously Verizon has the former MCI IXC businesss, and AT&T has the former IXC business of the same name, and CenturyLink has the Qwest longhaul business, and each of these does compete with each other in the intercity and large enterprise space.  And there's always wireless, where they do go head to head.  But when it comes to wireline competition at the local and regional level, none of these companies have never done so in any substantial way, despite all hopes that the descendents of Ma Bell would eventually grow beyond their local monopoly roots.  But while at the consumer level there is probably no business model that would make sense, independent fiber operators have been showing the way lately when it comes to the enterprise.

Windstream's purchases of NuVox, KDL, and now PAETEC represent a dramatic departure from the legacy ILEC and RLEC businesses the company derives from.  They are, or will soon be competing for SME business against Verizon on Verizon's traditional turf, AT&T on the former BellSouth and SBC turf, and CenturyLink most everywhere else.  They bring to the table a substantial amount of fiber, and they will be building new metro and regional fiber routes all over the place.  They will also be leasing circuits out of central offices from their ILEC brethren on a scale never seen before, and will sport one of the most extensive EoC footprints out there.  There are of course other hybrid ILEC/CLEC businesses (e.g. nTelos, HickoryTech amongst public companies), but nothing nationwide.

Yet in these days of wireline subscriber losses, withering revenues, and ILEC whimpering about it all, such a move makes so much sense.  The old copper plant can be managed for cash, providing the firepower for the nextgen fiber buildout - much as Earthlink's legacy access business is powering their move into the space.  By taking that fiber-based future onto a fully national stage, they can better choose where to do it - cherry picking geography where the economics work best - which obviously may not be within the legacy ILEC footprint.  Private equity has been powering such efforts, but the ILECs prefer to put their cash flows into dividends.

Those legacy ILEC footprints have historically been a comfort zone that these companies have been almost entirely unwilling to step out of.  But nowadays I think it's more of a cage in which they have imprisoned themselves alongside their own subscriber losses.  Windstream has courageously chosen to use its key.  Whether it works or not, they deserve credit for putting themselves out there.

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Categories: CLEC · ILECs, PTTs · Internet Backbones

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  • James Keeton says:

    Right now that appears to be the case. Hopefully Windstream continues this “out of the ILEC box” strategy. I’d hate to think they would sell off Paetec to the ILECs in their respective areas. It’s been a long time coming, but we may finally see competition among ILECs.

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