So I talked with someone who should know what they’re talking about with regard to Windstream. Not naming names because it isn’t important to do so anyway. Here are are some of the more interesting (though predictable) things that he mentioned:

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?