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Windstream Emerges from Bankruptcy, Promises More Fiber Broadband

Phillip Dampier September 22, 2020 Consumer News, Rural Broadband, Windstream No Comments

Windstream’s new logo

Windstream has emerged from Chapter 11 bankruptcy as a new privately held company controlled by Elliott Management Corporation, an activist hedge fund known for squeezing expenses out of companies and eventually selling its stake and exiting the business.

As a restructured company, Windstream shed almost two-thirds of its debt, amounting to more than $4 billion. The company will almost immediately tap $2 billion in new capital, targeting more spending on shedding copper wiring in several of its service areas, replaced by gigabit fiber that will primarily target its business customers. Windstream’s budget to upgrade residential customers is reportedly considerably less, but some customers will see upgrades in the future.

“Today marks the start of a new era for Windstream as an even stronger, more competitive company,” Windstream president & CEO Tony Thomas said in a statement released late Monday. “With the support of our new owners and current operational momentum, Windstream will continue advancing our long-term growth objectives while providing our customers with quality and reliable services.”

Thomas

The most immediate change most customers will notice is a new logo, which the company says aligns with the three segments of the business: consumer broadband, business customers, and wholesale/reseller clients.

Paul Sunu, who used to serve as the CEO of FairPoint Communications before it was sold to Consolidated Communications, is Windstream’s new chairman of the board.

“Tony and the Windstream team have made significant strides in the last 18 months to better position the company to compete for the long term,” Sunu said Monday. “The new board and I are confident that we have the right management team and right strategy to accelerate Windstream’s transformation, return to growth and drive sustainable value creation.”

Windstream was a publicly traded company since its 2006 spinoff from Alltel Corporation. As a private company, it will now answer primarily to its debt holders who acquired the company’s old debt in its bankruptcy.

Charter Spectrum’s “False Ads” Cost Windstream $3-5 Million in Profits, Expert Witness Testifies

Windstream Communications lost between $3.2-5.1 million in lost profits because of a 2019 false advertising campaign run by Charter Communications in areas where the two companies compete for internet customers, claimed an expert witness in a court hearing to determine the damages Charter must pay.

In December, U.S. Bankruptcy Judge Robert Drain issued a summary judgment finding Charter responsible for sending out misleading advertising fliers that violated the federal Lanham Act and false advertising laws in place in some states.

“Shortly after Windstream filed for Chapter 11 protection, Charter commenced a false and misleading advertising campaign designed to cause irreparable injury and damage to Windstream’s reputation and business,” the original lawsuit filed with the U.S. Bankruptcy Court for the Southern District of New York stated. “Charter targeted Windstream customers in Alabama, Georgia, Kentucky, Ohio, Nebraska, and North Carolina, which are several of Windstream’s top performing states.”

“On the envelopes for the advertisement, Charter intentionally utilized Windstream’s trademark and signature color pattern to mislead Windstream customers into believing that the advertisement came directly from Windstream. Indeed, Charter’s advertisement stated that it was ‘Important Information Enclosed for Windstream Customers.’”

The offending Charter flier seems to suggest Windstream is going out of business.

A later investigation found Charter sent at least 800,000 mailers to customers in service areas where Windstream competes with Spectrum.

Jeffrey Auman, executive vice president of sales and marketing at Windstream Communications, told the court last week the false ads directly harmed Windstream’s reputation with its customers, with some left believing the phone company was ceasing operations because of its bankruptcy filing. Auman argued it was fair for Charter to pay damages covering Windstream’s legal expenses to file the lawsuit and cover its advertising and promotional expenses incurred to rebut the ads and retain customers.

A company-provided expert witness testified Windstream lost customers and between $3.2 and $5.1 million in lost profits. Spectrum’s ad campaign also created long term negative “fear, uncertainty, and doubt” about Windstream’s health and ability to service customers. The witness claimed Spectrum’s fliers ended a “growth streak” for the phone company and has caused new customer projections to fall behind.

“It was a big deal with us,” Aubrey testified. “Word of mouth in these small communities means a lot.”

Windstream told Judge Drain the company has spent more than $4.3 million on service credits, promotional retention discounts, and cost-free upgrades to keep customers happy.

Charter has countered Windstream’s customer losses come from its inferior technology, which makes Windstream’s speeds slower and less competitive. Spectrum has upgraded internet customers in the midwest and parts of the southern U.S. to up to 200 Mbps for its Standard internet plan, which is much faster than what Windstream offers many of its DSL internet customers.

Wall Street Hates CenturyLink’s Dividend Cut; Company Punished for Upgrade Spending

CenturyLink’s stock is being pummeled after the company announced a cut in divided payouts to shareholders earlier this year, preferring to keep the money in-house to reduce debt and increase spending on necessary broadband upgrades.

Last fall, CenturyLink stock was trading for over $23 a share. By January, rumors that CenturyLink was going to cut its dividend put the stock on a downward trajectory, falling to an all-time-low below $11 this month. Company officials argued that with tightening credit opportunities and increasing interest rates, the company needed to devote money normally paid back to shareholders towards paying down its $35.5 billion long-term debt and provide better service to its customers.

A half billion dollars of that money will also be spent on upgrading CenturyLink’s broadband service, particularly in rural areas where the company is receiving Connect America Fund (CAF) dollars from the federal government.

“Our plan for 2019 includes investing to improve the trajectory of the business increasing CapEx by roughly $500 million,” Jeff Storey, president and CEO of CenturyLink said on a January analyst conference call. “As I mentioned earlier those investments include expanding the fiber network, adding new buildings throughout our footprint, enhancing our enterprise product portfolio, continuing our investments in CAF-II, and transforming our customer and employee experience.”

Investors were not impressed with those plans, and CenturyLink’s share price cratered.

Independent phone companies have traditionally attracted investors with handsome dividend payouts, but the realities of their aging infrastructure and the inability to compete effectively with cable companies on lucrative broadband services have left companies like CenturyLink, Windstream, and Frontier Communications in a quandary. Shareholders do not perceive value investing in fiber optic network upgrades and punish companies that announce dramatic increases in network investments. Customers left on slow-speed ADSL networks are increasingly dissatisfied with their internet experience and seek alternative providers — usually the local cable company. As Frontier Communications has discovered, attempting to win back ex-customers has been exceedingly difficult, often only possible with lucrative promotional offers that undercut the cable company. But such offers attract customers with above-average price sensitivity, making it difficult to extract increased revenue from them going forward.

CenturyLink’s stock price has dropped to an all-time low over the last six months.

Investors are also increasingly concerned about the financial viability of investor-owned phone companies that are stuck between leveraging their old networks and facing down shareholders when upgrades become essential. AT&T and Verizon have wireless units responsible for much of the revenue earned by those two Baby Bells. Traditional phone companies have had less luck trying to sell ancillary support services like Frontier’s “Peace of Mind” technical support service, or bundling satellite TV service into packages.

CenturyLink’s Local Service Territory (Source: CenturyLink)

CenturyLink is increasingly depending on its enterprise and wholesale businesses to earn revenue. That fact has prompted some shareholders to ask why the company hasn’t spun off or sold off its traditional landline network and consumer businesses, which currently account for only 25% of its revenue. In May, CenturyLink seemed determined to placate those investors with an announcement it was exploring “strategic options” for its consumer business. Investors theorize that CenturyLink could “unlock value” from its legacy landline networks in such a sale or spinoff that would benefit shareholder value. It would also be much cheaper than investing in that network to upgrade it.

The chorus for a sale increased after Frontier Communications announced it was spinning off its landline territories in the Pacific Northwest to a company specializing in upgrading legacy networks to support better broadband. Frontier, mired in debt and facing a concerning due date for some of its bonds, made the sale to give a boost to its balance sheet. Frontier had also been facing increasing scrutiny about a potential Chapter 11 bankruptcy filing. Windstream declared bankruptcy earlier this year, reminding investors that a trip to bankruptcy court could quickly wipe out all shareholder value.

MoffettNathanson, a Wall Street analyst firm that specializes in telecommunications, finds little to like about CenturyLink shedding its own landline operations. Frontier’s sale benefited from the fact a significant part of its Pacific Northwest territory was built from an acquisition from Verizon, which had already installed its FiOS fiber to the home network in parts of Washington and Oregon. About 30% of the territory Frontier is selling is fiber-enabled. In comparison, CenturyLink has installed fiber to the home service in only about 10% of its territory, dramatically reducing any potential sale price. Much of CenturyLink’s core fiber network powers its enterprise and wholesale operations — businesses CenturyLink would likely keep for itself.

MoffettNathanson also sees little value from the proposition a buyer could leverage CenturyLink’s network to provide backhaul fiber capacity for future 5G services, because CenturyLink provides service mostly in smaller communities likely to be bypassed by 5G, at least for the near term.

Wall Street’s idea of a win-win strategy for CenturyLink is to keep its consumer business and expand its broadband service footprint and capability, if the federal government offers to cover much of the cost through more rounds of CAF subsidies. Taxpayers would subsidize broadband expansion while CenturyLink and shareholders share all the profits.

Charter Guilty of Sending “Untrue and Improper” Letters Inferring Windstream’s Days Were Numbered

The federal judge handling Windstream’s Chapter 11 bankruptcy reorganization has found Charter Communications culpable for mailing “untrue and improper” advertisements to Windstream customers implying the company was going out of business and abandoning its customers.

Bankruptcy Court Judge Robert Drain ruled in favor of a preliminary injunction forbidding Charter from sending any further letters of this type and requiring Charter to pay Windstream to mail clarification letters to all Windstream customers who received the false advertisements from Spectrum.

Judge Drain also ruled:

  • Charter must pay all costs to restore Windstream service for former customers who switched to Spectrum based on their understanding that Windstream was discontinuing service.
  • Charter may not imply Windstream is going out of business in any future solicitations, or suggest that its current financial difficulties will have any negative impact on service.
  • Charter is forbidden from using advertising messages including “Goodbye, Windstream, Hello Spectrum,” or “Windstream Customer, Don’t Risk Losing your TV and Internet Service” in either direct mail or door-to-door marketing campaigns.

Windstream complained to the bankruptcy court about Charter’s mailings, which it claimed were designed to mislead customers into thinking Windstream’s days were numbered.

Bankrupt Windstream Wins Approval to Pay Top Execs $24 Million in Special Bonuses

Phillip Dampier June 11, 2019 Public Policy & Gov't, Windstream 1 Comment

A New York bankruptcy judge cleared the way for Windstream Holdings to pay its top executives up to $24 million in special retention bonuses to convince them to stay at Windstream while the company continues restructuring under Chapter 11 bankruptcy.

U.S. Bankruptcy Judge Robert Drain, who also oversaw the bankruptcy of Sears, agreed with Windstream the company executives were entitled to the special bonuses, which will pay out up to $5 million to key employees willing to remain with the company and an additional amount up to $20 million for meeting certain performance metrics.

U.S. Trustee William Harrington strongly objected to the bonuses, claiming some of the money could end up in the pockets of executives that made key business decisions that would later come back and force the company into bankruptcy. Harrington also objected to the low bar Windstream proposed to pay out performance bonuses. Under the proposal, key executives will receive bonuses if the company’s revenues reaches an amount 10% less than the company’s forecast revenues for 2019.

Windstream’s attorneys argued the company’s performance has been historically so poor, it failed to meet its own projected revenue targets multiple times. The attorneys also argued Windstream was likely to face “increasingly aggressive competition,” making it harder to convince customers to sign up for possibly less compelling service plans than those offered by its cable competitors. That would make the company’s ability to meet its financial targets less than certain, attorneys argued.

Windstream was forced into bankruptcy in February after a federal court ruled its spinoff of certain assets in 2015 violated the terms of its senior loans. A hedge fund successfully sued the company and won a judgment of more than $310 million, causing Windstream to seek bankruptcy protection.

Details of Windstream's Key Employee Incentive Plan (KEIP)

Details of Windstream’s Key Employee Incentive Plan (KEIP)

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