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Windstream’s Limited Services More Problematic than Q2 Miss

Competition in the telecommunications industry is cut-throat and it’s getting worse and worse, which means that Windstream has to take a serious look at their service-mix model. The company really needs to offer customers’ more services if they want to stand a chance against their competition. Analysts feel that an investment in the telecom sector shouldn’t be taken off the table completely, at least that’s what they are saying while they are still in the analysis phase of the company’s planned REIT conversion.
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Windstream recently reported their Q2 results, which were below what the market predicted. Thus, the company definitely had a better performance the previous year as they posted a 2 percent decline in their overall service revenues. The consumer side of the business saw a bit of growth as revenues have increased compared to the company’s first-quarter results from 2012 onwards.

Price hikes in Q2 may have led to higher revenues on a consumer basis but they also resulted in a higher level of customer loss. Thus, Windstream lost 32,900 net consumer phone lines and a minimum of 16,600 net consumer Internet access customers jumped ship this quarter, which is likely the biggest debacle the company has faced since 2010.
Windstream’s business services portfolio, which has been the company’s long-term driver of growth, exhibited a 1.1 percent decline in revenues. The company pointed out, though, that their sales volumes for businesses were up by 9 percent, while revenues for H1 2014 are expected to see an increase sooner rather than later as service is achieved. Analysts are still predicting that the company’s growth target for portfolio revenues will be 1 to 2 percent below expectations for 2014.

In regards to profitability, the company’s EBITDA margin dropped from 38.7 percent to 37.1 percent compared to the same quarter in the previous year. Analysts feel that offsetting the investment required for growth with profitability is complicated for this sort of business. The company’s year-to-date free cash flow is $360 million, which shows an increase over 2013, when it was $256 million, due to cuts in capital expenditure.

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