Windstream has announced the increased broadband investments that expanded DSL service to about 75,000 more homes and businesses and brought fiber connections to cell towers are nearly complete and the company intends to dramatically cut spending on further enhancements by the end of 2013.

Jeff Gardner, Windstream’s CEO, told investors on a conference call last week the company’s highest priority in 2013 is preserving its current dividend to create value for shareholders. Not on the priority list: improving broadband infrastructure to support video streaming services, further expanding broadband in areas it now bypasses, and boosting the quality of service it delivers to current customers.

Gardner called the company’s increased investment in 2011 and 2012 a result of “finite opportunities that provide[d] attractive investment returns.”

But most of that spending will come to an end next year.

“We expect to substantially complete our capital investments related to fiber to the tower projects, reaching 4,500 towers by the end of 2013,” said Gardner. “In addition, we will finish most of our broadband stimulus initiatives […] to roughly 75,000 new households. As we exit 2013, we will see capital spending related to these projects decrease substantially.”

That could be bad news for communities in places like Wayne County, Mo., which suffers with inadequate broadband from the company. In some areas when local broadband traffic reduces DSL speeds to a crawl, area businesses are occasionally forced to shut down for the day.

Broadband and business services now account for 70% of Windstream’s revenue, but it has come with a price: increased investment, that Wall Street considers negative to the company’s value. To satisfy analysts and shareholders, Gardner made it clear improving the balance sheet is a major priority. He said he will continue to direct excess free cash flow first to preserve the company’s shareholder dividend, and then direct much of the rest to debt repayment.

That does not mean Windstream will end all investments in its business. The company now spends 12.4% on ongoing capital investments and will continue to do so, but much of the spending will cover network upkeep and supporting more profitable business services.

“Over the last four years, our acquisitions have been very targeted on businesses that are growing in the strategic growth areas that we’re focused on, and we’ve really changed the mix very significantly here, away from the consumer business toward the enterprise space, and I think that puts us in a very different position with respect to the stability of our revenue and OIBDA over time,” Gardner added.

Windstream plans to bring back its “price for life” promotion this year.

Gardner noted Windstream is well-positioned to take advantage of the fact it has few competitors, which reduces pressure to invest and improve its networks to stay competitive.

“Our residential customers remain concentrated in very rural areas where there is less competition, which has contributed to a more stable consumer business,” Gardner admitted.

He added that those rural customers will have to rely on the company’s satellite partner Dish Networks for video services. Windstream will not build a “capital-intensive facilities based technology” to support online video. In contrast, CenturyLink has invested in Prism, a fiber-to-the-neighborhood service in several of its larger markets, to offer triple play packages of broadband, phone, and cable TV. Windstream has no plans to follow.

Despite investments in 2011 and 2012 to improve broadband service and speeds, Windstream’s DSL services have not kept up with its cable competitors.

During the last quarter, Windstream lost 2,000 broadband customers and 23,000 consumer voice lines (a 4.5% decline year over year).

To stem the tide of customers moving away from the phone company, Windstream is trying to sell value-added Internet support services, online backup, and faster speeds to maximize profitability. It will also add new customers made possible from federally funded broadband stimulus projects.

Windstream customers can expect to see increased promotional activity this year to win or keep their business:

• Covering the costs of switching from another provider to Windstream;
• A return to the “price for life” promotion, which promises stable rates as long as a customer stays with the company;
• A substantial introductory discount on satellite TV when bundled with Windstream’s own services.

CenturyLink investors got the shock of their investment lives last week after company executives announced the phone company was slashing its dividend by 26 percent from 72.5 cents to 54 cents per share. The stock immediately tanked, tumbling the most in more than three decades, according to Bloomberg News.

The stock price crash wiped out about $6 billion in market value after the dividend cut was announced and stock analysts lambasted executives for the decision.

But CenturyLink’s move to stop paying out large sums to investors does not mean the company is going to spend the money on network and service upgrades. Instead, CenturyLink executives plan to spend $2 billion in stock purchase buybacks over the next two years.

“This is one of the most unusual capital allocation decisions I have ever seen,”  Todd Rethemeier, an analyst with Hudson Square Research in New York told Bloomberg.

CenturyLink, like Frontier Communications and Windstream, have all been popular “investment-grade” stocks for investors that rely on dividend payouts. Many investors explore various platforms for trading these stocks, often seeking resources that provide in-depth analyses, such as a Kraken review, to make informed decisions. All three phone companies have paid extremely high dividends to attract shareholder investment, but the ongoing decline in revenue from landline customers disconnecting service has made high dividend payouts financially untenable. CenturyLink has lost six percent of its landline customers in the 12 months ending last September, a decline of 857,000 lines. In the last two years, the dividend payout has cost CenturyLink 50-55 percent of its free cash flow. That is unsustainable at a time the company is losing upwards of $25 million in operating revenue every quarter.

From: Seeking Alpha

CenturyLink executives told shareholders in the company’s latest quarterly conference call that much of CenturyLink’s investment will continue to build fiber links to serve highly profitable cell towers. The company also plans to further expand its fiber-to-the-neighborhood service Prism, which works similarly to AT&T’s U-verse. Phoenix, Arizona is the company’s next major target for rollout, with the service already soft-launched in certain neighborhoods. But do not expect CenturyLink to begin a spending spree to expand Prism rapidly into other communities, even if it means losing more landline customers.

The Minneapolis Star-Tribune reports CenturyLink, the city’s primary phone company, is now in a race against time in a country where more than a third of Americans rely on cellphones — a service CenturyLink does not provide. In response, CenturyLink has relied on its multi-platform Prism service, which can provide phone, broadband, and cable-TV in its bid to stay relevant and help improve earnings growth. The company also sees corporate customers as a major income source, and has expanded into the business of cloud computing with its acquisition of Savvis.

But the company has a more immediate potential challenge. The Communications Workers of America (CWA), the union representing as many as 13,000 CenturyLink employees, has authorized its executive board to set a strike date. The company’s labor contract expired in October and bargaining has yet to achieve a renewal. Workers are complaining about significant benefits cuts, especially to health care plans.

Roberts

While Comcast customers face New Year rate hikes that could cost some as much as $60 more a year for cable, broadband, and phone service, life is good for Brian Roberts, chairman, CEO and president of Comcast Corporation.

Comcast disclosed Roberts ditched 317,000 shares of stock in the company for nearly $11.6 million, according to a filing with the Securities and Exchange Commission.

Roberts sold 105,800 shares of his wife’s stock on Dec. 19, 106,000 shares owned by his trusts on Dec. 20, and another 105,400 shares owned by his wife on Dec. 21.

He has plenty of shares left. Roberts owns 100% of Comcast’s Class B common stock, which entitles him to one-third of Comcast shareholders’ voting power.

The inauguration of President Barack Obama for a second term in the White House is brought to you by generous financial contributions from AT&T, Microsoft, and a handful of big health care and pharmaceutical companies that all do business with the federal government.

AT&T, which donated generously to the Romney campaign, has been making amends with the administration remaining in office by underwriting the lavish festivities, despite earlier promises from the Obama Administration not to accept corporate money for the inauguration.

The telecom giant is among seven corporations that have found their way around federal laws that bar contractors from spending money to influence elections. No law stops them from writing big checks for inaugural events or political conventions (see here, here, here, and here for our earlier reports).

AT&T is among the most powerful special interests in Washington, with more than $14 million spent lobbying Congress and federal agencies like the FCC in just the first nine months of 2012, according to The Center for Responsive Politics’ website, Open Secrets.

AT&T handed out nearly $2 million to political action committees, parties, and secretive independent groups that run campaign ads without disclosing who pays for them. Candidates did not suffer for money either. Direct AT&T contributions totaling $3,297,096 were handed to members and would-be members of Congress, with the company heavily favoring Republicans.

Among those winning AT&T checks valued at $10,000 or more were 65 Republicans and 16 Democrats:

But the Money Party doesn’t end there. At least 49 members of the House and Senate that vote on legislation that directly affects AT&T’s bottom line also happen to be shareholders of the company:

Akin, Todd (R-MO)
Berkley, Shelley (D-NV)
Berman, Howard L (D-CA)
Bingaman, Jeff (D-NM)
Boehner, John (R-OH)
Bonner, Jo (R-AL)
Buchanan, Vernon (R-FL)
Burgess, Michael (R-TX)
Cassidy, Bill (R-LA)
Coats, Dan (R-IN)
Coble, Howard (R-NC)
Coburn, Tom (R-OK)
Cohen, Steve (D-TN)
Cole, Tom (R-OK)
Conaway, Mike (R-TX)
Conrad, Kent (D-ND)
Cooper, Jim (D-TN)
Doggett, Lloyd (D-TX)
Frelinghuysen, Rodney (R-NJ)
Gibbs, Bob (R-OH)
Hagan, Kay R (D-NC)
Hanna, Richard (R-NY)
Hutchison, Kay Bailey (R-TX)
Inhofe, James M (R-OK)
Isakson, Johnny (R-GA)
Johnson, Ron (R-WI)
Keating, Bill (D-MA)
Kerry, John (D-MA)
Kingston, Jack (R-GA)
Lance, Leonard (R-NJ)
Marchant, Kenny (R-TX)
McCarthy, Carolyn (D-NY)
McCaskill, Claire (D-MO)
McCaul, Michael (R-TX)
McKinley, David (R-WV)
Perlmutter, Edwin G (D-CO)
Peters, Gary (D-MI)
Renacci, Jim (R-OH)
Rogers, Hal (R-KY)
Sensenbrenner, F James Jr (R-WI)
Sessions, Pete (R-TX)
Smith, Lamar (R-TX)
Tipton, Scott (R-CO)
Upton, Fred (R-MI)
Vitter, David (R-LA)
Webb, James (D-VA)
Welch, Peter (D-VT)
Whitehouse, Sheldon (D-RI)
Whitfield, Ed (R-KY)

AT&T, which Open Secrets deems a “heavy hitter,” also benefits from Washington’s revolving door between public service and private sector lobbying. The group notes at least 63 out of 86 AT&T lobbyists have previously held government jobs, often at the agencies that oversee and regulate the company.

Public Citizen says it is disturbed by revelations companies like AT&T, Microsoft, and various pharmaceutical and health care interests like Centene and Genentech-Roche Pharmaceuticals have been allowed to contribute because all of them are in business with the federal government. AT&T has been awarded more than $101 million in federal contracts this fiscal year. Microsoft, which spent $5.7 million lobbying Washington has earned most of that back with $4.6 million in contracts with the Department of Homeland Security, the White House, and other federal agencies.

Almost none of the companies contacted by USA Today were willing to return calls or comment on the contributions. But Public Citizen did go on the record with the newspaper.

“Such donations are more troubling when they come from companies that have significant ongoing business with the federal government,” said Robert Weissman, the group’s president. “They will expect a very good hearing regarding any concerns, complaints or aspirations they might have.”

AT&T lost 649,000 DSL customers in three months.

AT&T’s broadband customers are taking their business elsewhere as second quarter results show the phone company lost 649,000 DSL customers in the last three months, while only picking up 553,000 new U-verse Internet users to replace those leaving. The result was a net loss of nearly 100,000 broadband customers in a single quarter. The company also only managed to attract 155,000 new U-verse television customers away from satellite or cable operators during the quarter.

AT&T blames the losses on “seasonality” — code language for part-time residents, college students, and other fluctuations that occur as customers come and go. Total broadband connections dropped 0.2% for AT&T, with 16.43 million remaining customers.

Landline customers also continue to depart AT&T in droves. More than one million home phone customers pulled the plug on AT&T this quarter. AT&T has lost nearly 11 percent of their landline customers over the past year.

For those remaining, a combination of rate increases, cost cutting and fierce marketing of bundled packages of services are keeping revenue growing on both the residential and business side.

AT&T is getting closer to announcing a “rural landline solution,” which some analysts predict will be the company’s exit from the rural landline business.

Executives continue to hint the company is reviewing its future in the rural landline business. AT&T lobbyists have shepherded new laws in several states that would allow them to abandon rural landline customers where the company is no longer required to be “the carrier of last resort.”

AT&T U-verse is turning out to be not much of a threat to cable and satellite operators, only achieving a 17.3% penetration rate in areas where the service is available.

The real money for AT&T is being made in the wireless sector, where increasing prices, changes to service packages, and data usage-based billing are all paying off  — revenue for wireless data alone is up 18.8% to $1 billion during the second quarter. AT&T earned $14.3 billion from its wireless business in just the second quarter alone.

At the same time, the company is slashing investments in parts of its network and cutting employees.

Capital expenditures in the second quarter amounted to $4.48 billion, down 15% from the $5.27 billion AT&T spent a year ago. AT&T also cut its workforce by 6.4% since June 2011, with a reported 242,380 total remaining employees.

Despite the company’s talking points, AT&T’s upgrade fee is designed to slow down customers considering upgrading their smartphones.

In other highlights:

• Wall Street analysts are praising AT&T’s stricter upgrade policies and device upgrade fees. In fact, at least one analyst wants to see AT&T raise the fee to $50 for every phone upgrade. The fees discourage customers from upgrading their phones, which dramatically reduces AT&T’s costs. AT&T subsidizes phones for customers. The longer customers hold off from upgrading, the more revenue AT&T keeps for themselves and shareholders. AT&T has made it clear it will continue to “introduce discipline”  in the handset market to enforce “rational pricing,” which means customers will continue to see further reductions in device subsidies and face higher prices when upgrading phones.
• Much of AT&T’s investment will be in its LTE 4G network. AT&T’s spending on wireline services including U-verse is on the decline.
• AT&T admitted its policy of monetizing data usage for profit is well underway: “[We are getting] ourselves set up for revenues that are going to be tied to usage, which will then be tied to our capital requirements and a really profitable situation.”
• AT&T is aggressively pushing customers to upgrade to smartphones so they can earn additional revenue. “Smartphone subscribers now number 43 million and make [up] 62% of our total postpaid base. But smartphones accounted for 77% of postpaid sales during the quarter, showing continuing opportunity for growth. And when you look at our total smartphone base, we’ve added 9 million high-value smartphone customers in just the last 12 months.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/ATT 2Q2012 Results.flv[/flv]

AT&T spins its 2nd Quarter results for shareholders in the best possible light. Although revenues are up, the number of customers leaving AT&T for other providers may challenge future growth and earnings. (4 minutes)