CEO: Windstream Likely to Accept CAF II Broadband Funding

Windstream expects to accept Connect America funding in Phase II of the program to cover some of the costs of bringing broadband to customers who can’t get broadband service today, said Windstream CEO Jeff Gardner in an interview with Telecompetitor last week.

“We’re very optimistic [that in] most of our states we’ll be able to take the money,” said Gardner. In the interview, Gardner also discussed how the company’s plan to spin off its copper and fiber assets into a real-estate investment trust will impact network construction plans.

CAF II Broadband Funding
Under Phase II of the CAF program, large price cap carriers such as Windstream will be offered funding based on a cost model to bring broadband to a specific number of homes within each state that they serve. If a carrier doesn’t commit to deploying service to all locations within a state, it will not be able to collect any funding for that state. Instead, a competitive bidding process will be opened up, potentially enabling a competitive carrier to win funding.

“It’s a win-win,” said Gardner of the CAF program. “We know people need this but [it would be] impossible to do [as a] stand-alone business.” Windstream serves an average of 15 access lines per square mile, making it costly to serve some of the company’s most remote areas, Gardner noted.

One of the issues that still must be resolved before CAF II can get off the ground is the target minimum broadband speed. Although that speed is currently set at 4 Mbps downstream/ 1 Mbps upstream, FCC Chairman Tom Wheeler has recommended increasing the target to 10 Mbps downstream.

“The chairman’s basic direction is right,” said Gardner. “Over time [people] will want a higher speed. It’s not an unreasonable request. But if you do ten-one, you have to rethink the economics because it will cost us all more. And if it’s ten-one, [the FCC needs to] give us time to build it.”

Windstream anticipates relying primarily on fiber-to-the-node to meet its CAF build-out requirements, Gardner said.

Windstream is already one of the biggest recipients of Connect America funding. In last year’s program, the company accepted all of the money it was offered and asked for and received additional funding declined by other carriers.

The 2012 and 2013 CAF programs, known as Phase I of the program, awarded funding for a portion of each carrier’s unserved lines based on a fixed amount per line that was identical for all carriers. For the 2012 program, Windstream declined most of the funding it was offered, but the company had a change of heart for 2013, when some details of the program were changed.

How Will the REIT Figure In?
Gardner doesn’t expect Windstream’s plan to spin off certain network assets into a separate real estate investment trust to impact the company’s CAF or other network build-outs.

He noted that the REIT will only be obtaining Windstream’s copper and fiber. That doesn’t include DWDM equipment, switches, routers, digital loop carriers or other electronics, he said. He also noted that the fiber and copper assets the REIT will get from Windstream will be for Windstream’s exclusive use. If the REIT obtains copper and fiber from other companies, as it hopes to do, it could make a similar arrangement with those companies.

“We have complete control,” said Gardner about Windstream’s network. The REIT, he said, “is simply the real estate owner – we’re still responsible to manage and deploy” network assets.

The FTTN networks that Windstream expects to build under the CAF program will require replacing a portion of copper access lines with fiber, using existing copper only for a relatively short distance from a neighborhood node to each customer.

So who will own the new fiber – Windstream or the REIT?

The answer could be either one, depending on which company’s cost of capital would be lower, Gardner said. In any case, however, Windstream would be in charge of the deployment, he said.