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Windstream (WIN) Downgraded to Hold, Competition a Drag

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On Oct 5, leading exchange carrier in the U.S., Windstream Holdings Inc. (WIN - Free Report) , was downgraded by a notch to a Zacks Rank #3 (Hold). The downgrade was a result of losses in the wireless industry, wholesale business and carrier transport business of the company along with intense competition.


The dynamics of the communication industry is significantly governed by technology innovation. Hence, leading national carriers continue to introduce networking technologies and next-generation products and services. Top-tier carriers such as AT&T Inc. (T - Free Report) , Verizon Communications Inc. (VZ - Free Report) and Sprint Corp. (S - Free Report) have deployed 4G LTE networks across most of their coverage markets. Availability of these new technologies may result in intensified competition for Windstream’s broadband Internet business. To remain competitive, the company needs to invest significantly in technology and network upgrades, or experience greater subscriber churn to larger competitors.

Windstream can also utilize the higher speed copper-based VDSL2 service to overcome tough competition from cable multi-service operators (MSOs) – Comcast Corp. (CMCSA - Free Report) and Charter Communications – as the two continue to expand their small, medium and large businesses. 

Other Risks

Windstream has been grappling with losses in the wireless industry, wholesale business and carrier transport business. Wireless competition has resulted in reduction in the company’s access lines and has led to pricing pressure in the industry. The wholesale business is dealing with diminishing access lines, lower switched access rates and fewer minutes of usage. Windstream’s carrier transport business is also affected as telecom operators demand smaller amount of copper-based dedicated circuits for the transfer of data between different points within their network.

Windstream is also subject to stringent regulatory measures set by the telecom regulatory authority in the U.S. – Federal Communications Commission (FCC)

Despite management’s efforts to modify its financial profile, we are concerned about Windstream’s highly leveraged balance sheet. The company’s ongoing collaborations and investment plans to expand its coverage markets and subscriber count will likely increase its expenditure and strain its balance sheet, as the company is predominantly funding most of these activities through debt.

Recent Developments

Windstream is well poised for long-term growth based on its investments in fiber-to-the tower, broadband networks and cost management initiatives. Windstream’s new cloud-to-cloud disaster recovery management solutions replicate mission-critical virtual servers and data to provide an alternative system for cloud-based disaster recovery system to customers. The company strengthened its existing tie-up with Cologix through the construction of 2 new PoPs in Dallas, TX and Columbus, OH. Also, the recent expansion of its metro fibre network business in Atlanta, Minneapolis and Chicago and plans of ramping up the deployment of technologies to deliver speeds of up to 1 gigabit per second (Gbps) over traditional copper telephone wires should bode well.

Meanwhile, the company announced that its $250 million Project Excel program, launched in 2015, is on track. The project will enhance the network provision of the company by upgrading its fiber-fed DSLAM (Digital Subscriber Line Access Multiplexer) infrastructure to VDSL2-(Very-high-bit-rate digital subscriber line 2) network equipment, to deliver higher speeds of 50-100 Mbps (Mega bits per second) and a better durable backhaul network. Windstream expects to complete the project by the end of 2016.

WINDSTREAM HLDG Price and Consensus



Stock to Consider

A better-ranked telecommunication stock is NTT DOCOMO, Inc. , with a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

The current year earnings estimates for NTT DOCOMO have improved 7.27%, over the last 60 days.

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