1. Windstream’s biggest customers are AT&T and Verizon
Telcos buy backhaul from other telcos when it comes to providing cellular service. As long as Verizon and AT&T continue to rule the roost in the wireless biz, Windstream will continue to get a fair chunk of change per month for T1s and fiber Ethernet connections to cell sites in their footprint. In many cases other cellular providers also have to use Windstream for backhauling their cell sites, which generates even more revenue for Windstream, which isn’t particularly forgiving when it comes to T1 pricing either.

2. Rural wireline customers are going to be around forever
His words, not mine. The idea is that cellular service out in the sticks isn’t all that great to start with, and  if cell service is good then it’s riding over Windstream lines. Rural folks are also more reticent to give up landline service even if cellular service works just fine, and Windstream DSL  goes places that cable never will. Combine that with a USF kickback or two, plus low pricing on both DSL and landline service and you’ve got, in theory, a captive user base who will keep paying you $5o or $60 per month ad infinitum, as long as you keep that copper pair to their house in reasonable shape. Oh, and you’re getting some USF funding on each line because you’re rural; even Windstream’s “naked” DSL service still has a phone line involved, albeit one where outgoing calling of any kind costs 10¢ a minute.

Of course, the model breaks down if you’re serving areas that do have cable, where you just have to compete on price or lose customers unless the cableco is grossly incompetent. Or if the cellular providers use the cablecos for bandwidth and take wireless backhaul routes instead of Windstream wired ones, Windstream loses out. Or if some wireless ISP decides to offer service that beats Windstream’s standard 3 Mbps down, 635 kbps up (after ATM overhead), $40 DSL service, Windstream’s position gets a little less tenable.

Of course, Windstream does do fiber to the home for all of their new builds, and the tech supports either 12 or 24 Mbps down and 768k or 1.5M up. However even those speeds pale in comparison to what companies like Comcast have done with their DOCSIS 3 products. Then again, Windstream tends not to compete against Comcast.

3. Windstream could have bought Frontier, FairPoint , Embarq or even Qwest, but the price was too high
Windstream is no stranger to acquisitions; buying their way into being the ILEC in a given market  has been done several times recently, with Iowa Telecom being the biggest purchase. Windstream is also not averse to buying competitive carriers, as long as they can make a pretty penny on data revenues. To that end, they bought NuVox.

However the company has passed up deals like Verizon’s now-Frontier territories, the sinking carcass that is FairPoint and even such hulking giants as Embarq and Qwest, leaving the two last companies to CenturyTel…erm…CenturyLink. What’s interesting is that the rural telephone market…which also happens to include Las Vegas, Phoenix, Denver and all of Oregon…seems to be converging to two or three carriers: CenturyLink, Windstream and Frontier, with Frontier a possible acquisition target down the road by one of the other two operators. Note that the consolidation talk reflecting future buy-outs is my conjecture, not that of the source I talked with.

4. Verizon will sell its remaining rural markets, but they may be bled dry before that happens
Verizon didn’t sell their rural Texas markets to Frontier in the gigantic July 1st swap, yet many of these markets will never see FiOS. So Verizon is shopping the markets around…somewhat…though at this point the price to Windstream is still much too high for the company to bite. In all likelihood, Verizon will wait too long to sell to a provider who actually cares about copper-based service, forcing the company to offer fire-sale pricing because they are selling copper plant rather than a customer base. WIndstream is good at keeping churn low, but I don’t hear about the company picking up new lines of service on copper infrastructure unless it’s DSL service for someone who already has a landline.

So, what do y’all think about the above?

1. My mom saw a Verizon truck in the county fair parade today (I didn’t go; saw no need and was tired). The truck has “High Speed Internet coming soon!” or similar painted on te side. This is DSL, not FiOS (Verizon always refers to their fiber offering by its trademarked name). However from what I hear Verizon’s DSL release is just a ploy to drive up the sale cost of their system here; Fredericksburg isn’t a large metropolitan area, and there are too mayn bridged taps and other phone system anomaies here for DSL to reach beyond a small part of town. At least that’s what the scuttlebutt says. My prediction: Verizon offers some flavor of DSL to folks who can currently get Windstream DSL, then sells the system to whoever will take it, using the “we have DSL in our central office” argument to jack the price up slightly above what the system is worth.
2. Bee Creek Communications, the local our-hands-are-tied-and-if-anyone-competes-with-us-we-lose wireless ISP, was in the parade today as well. They also have a third-of-a-page ad in the paper advertising free installation to new customers until September 15th. A few years ago an installation with similar equipment would have run you around $220. The problem here is that their network is already over capacity in some areas, they’re spread too thinly in terms of manpower and their speeds are the stuff of yesteryear, barely competitive with satellite internet (though their monthly transfer caps are higher). The service also requires a two-year contract with a $125 early termination fee. If you want a one-year agreement service will run you another $10 per month. In short, don’t buy.
3. Clearwire is launching WiMAX service in San Antonio and Austin on September 1st. Maybe they’ll bring their service here. Would put Bee Creek right out of business, since Clear has an uncapped-download, one-megabit-upload (or is that uncapped too?) tier for a mere $45 per month. They even have cheaper tiers to compete with your garden-variety DSL options. They even have business tiers that will fill the gap between Bee Creek’s woefully slow packages and Time Warner Cable’s woefully expensive ones. In a nutshell, something for everyone as long as you’re within range of one of their towers. I’ll be keeping close track of what happens here. For what it’s worth, I told Bee Creek about Clear’s possible imminent launch nearby, and I wouldn’t be surprised if their larger-than-usual print ad was a direct result of this.
4. Hill Country Telephone Cooperative has run fiber around the city of Fredericksburg and plans to get CLEC (competitive local exchange carrier) operations started before the end of the year, or something close to that anyway. They may just focus on high-end business operations (like they’re doing in nearby Kerrville, where they recently connected the city’s independent school district) however they’re a residential provider in their home area, so they know how to deal with “normal” customers. Plus, they have a lot of options for deploying service; in addition to their new fiber-optic network they have an AWS (1700 MHz cellular) license for this area, a 3.65 GHz “light license” which they’re using for WiMAX service in the nearby town of Mason, and maybe (if the price is right) Verizon’s old copper network, though I’m not sure why they’d want it. I heard HCTC offered $50 million for the network a few years back, and Verizon wanted $80 million fot it. Knowing that the network wasn’t worth that much, HCTC walked.

In short, it will be interesting to see what happens around here in the relatively near future with regard to internet service. Right now Time Warner Cable is the only provider who will give you more than a 2 Mbps connection (okay, HughesNet will give you 5 Mbps but they don’t count due to obscenely low caps and ridiculously high monthly fees). They’re also the only provider around here with customer-available fiber; Verizon apparently doesn’t have any. Sounds like that may change soon though. I’ll tell all I know (or am allowed to tell, whichever is less) as I find out more.

Starting off with the wireless division, we see the iPhone getting a few new laurels to rest on. It has snagged the top spot for most sold US wireless phone this quarter from the Motorola Razr, and also appears to be 2X the reliability of BlackBerries and nearly 3X the reliability of Treos. AT&T has also opened up free AT&T WiFi access to iPhone and other smartphone users. This is particularly cool since the company also bought up hotspot operator Wayport right around ten minutes ago.

Last but not least, 1.1 million customers and a lot of spectrum, towers and other such infrsatructure got traded for a cool $944 million in AT&T’s buyout of Centennial Communications, yet another regional GSM carrier to fall under AT&T’s sway.

UPDATE: Looks like AT&T will be allowing iPhone tethering…for $30 on top of your regular data plan. The transfer limit is 5 GB with this option, and if you’re thinking that the total data cost is equal to that of a dedicated modem, you’re abso-freaking-lutely correct. Ripoff? Yes, but I suspect people will bite. Though Sprint’s network is generally faster, and tethering is only $15 on top of a data plan, which is also $30 on top of a voice plan but also includes everything from navigation to text messaging.

Speaking of WiFi, you get that free with most AT&T DSL/U-Verse plans. Which may be capped. The monthly transfer caps are as follows:

$10-$20, 768K, 20GB (DSL only)
$25-$32, 1.5M, 40GB
$30-$36, 3M, 60GB
$35-$43, 6M, 80GB
$55, 10M, 150GB (U-Verse only)

The caps are a bit biased speed-wise toward the lower-end tiers, but of course cost-per-GB-wise toward the higher tiers. Overages will be $1 per GB. The caps are squarely between Time Warner Cable’s proposed 5-40 GB limits and Comcast’s 250 GB cap. What’s funny about this is that AT&T hs plenty of backbone infrastructure, especially with U-Verse, to allow everyone to download as much as they want. Of coursse, business-class users won’t see these caps, but users in the Reno, NV test market already are, or they’re being grandfathered in at 150GB per month. What’s unnerving is the result if you only qualify for a lower-speed DSL connection due to distance from the CO: low caps, high overages.

Speaking of U-Verse, AT&T has introduced an 18 Mbps tier (1.5 Mbps upload) for $10 more than the 10/1.5 Mbps one, or $65 per month, though people have reported that they’ve gotten better deals by calling AT&T to upgrade. The caveat: the U-Verse service has to share bandwidth with any TV that’s running, and the shared pipe is only 25 Mbit/s wide downstream and 2 Mbit/s upstream. This “profile” is due to the fact that VDSL (the tech upon which U-Verse is based) drops off quickly speed-wise as distance from the VRAD (fiber-fed DSL terminal) increases. The result: if you’re watching TV, you get 14-15 Mbps internet speeds instead of 18 Mbps, though TV quality doesn’t degrade while the internet is being used. No word on caps on this tier; let’s hope they’re to the tune of 250GB…competitors are sure to deploy DOCSIS 3 in response to this new U-Verse tier, and Comcast‘s caps are well above AT&T’s proposed ones.

Last but not least, AT&T is trying to create a video search engine (!?!) in partnership with a startup by the name of Divvio. Once can’t but think that this new service, dubbed Videocrawler, will be a nice tool for chewing up your gigabytes once caps are in place. Why I oughta…