I recently spoke at a Windstream meeting and helped them think about the changing industry and what’s coming next. Preparing for that speech opened my eyes to how fast this company — and, in fact, the entire industry sector — is changing.
Windstream and CenturyLink are in the process of transforming themselves from two of the lesser known tier-two local phone companies to larger and more important competitors in the No. 3 and 4 spots right behind AT&T and Verizon. How successful and innovative will these rapidly growing companies become is the question. It may be time to start paying closer attention.
These companies have been growing in recent years, thanks to acquisitions. They are starting to punch their way onto the radar. They are suddenly much larger than just a few short years ago.
Ten years ago, these companies may have looked like smaller versions of the Baby Bells. Today, we see two distinct groups of telephone companies developing. One group is companies like AT&T and Verizon. The other group is companies like Qwest, CenturyLink and Windstream.
All About the Bundle
Group one offers all services and competes heavily with other wireless companies, cable television companies, and other local phone companies. Group two also competes with the same companies, but does not offer the same range of services, and the level of competition is more gentile.
Group two companies don’t offer the same range of services as the Baby Bells. Example — they don’t offer their own television or wireless service. They resell other companies’ services. It’s a different model, but it seems to be working for them.
Losses due to competition are different too. AT&T and Verizon see losses to competitors of traditional telephone service in the 10-12 percent range. At the same time, losses for tier two companies are significantly lower. Windstream is in the 3-4 percent range.
That is very helpful to these companies. It gives them more time to think, build and transform. However, losses are still losses. That means they cannot be ignored. The companies need to focus on transformation and growth going forward.
I see the acquisitions continuing. That means these firms will continue to grow in size and scope for the next several years. However, the companies they are acquiring are also facing competitive pressure, so they must focus on growth strategies so they can earn more from each customer.
What that means is since they will be losing some customers to competitors no matter what, they have to earn more from the ones they keep. It’s a simple goal.
That means they have to increase the size of their bundle. It’s all about the bundle. They have to offer a wide range of services.
Companies like Windstream have always been focused on the consumer for telephone, but now they are also focusing on the business side and offering broadband services. These are first steps toward increasing their growth, and it seems to be working for them at this early stage. Will it continue as the industry changes?
All companies face the same pressure: Grow by offering more services to existing customers, or shrink.
Transformation Under Way
How they attack this challenge can be different. We see companies like AT&T and Verizon taking a similar route. We see companies like Qwest, CenturyLink and Windstream taking a different route. They can all lead to growth — however, some seem to be struggling.
Over the last decade, we have seen the telecom industry completely transform itself. In fact, we are in the middle of a long-term remake.
Years ago, we saw the local phone companies compete with long-distance companies and win. They then acquired the long distance giants like AT&T and MCI.
Today, Baby Bells compete with Sprint and T-Mobile for wireless, and with cable television companies like Comcast, Time Warner and Cox for the big bundle of wireline services.
Tier two used to be full of many smaller competitors that were below most radar screens until now. Suddenly, mergers have grown CenturyLink and Windstream.
Whether you are an investor, a customer or a worker, you have to start paying closer attention.
CenturyLink just acquired a local phone business called “Embarq,” which came from Sprint. Now it is in the process of acquiring Qwest, the No. 3 baby bell. That will put it in the No. 3 position and give it Baby Bell status for the first time. How will it handle that new position?
Windstream used to be called “Alltel” before the company broke up a few years ago. The wireless Alltel was acquired by Verizon Wireless. The wireline business changed its name to “Windstream” and has been growing due to acquisitions. It is growing beyond the consumer space into the business and Internet space. So far, it looks strong. Will that growth continue, and will the company successfully move into new areas?
Fasten Your Seatbelts
Surprisingly, this is not being talked about much yet. Perhaps that is because it is not being written about much in the media yet. However, I think that is about to change. The media and the analyst community will start to pay more attention. These companies will start to be a focus of stories going forward. The changes they are going through will be transformative not only for them, but also for their entire industry segment.
They are still in the early innings of a new game. Not only are these tier two players changing, but the industry is changing as well. Remember a few years back, when SBC acquired AT&T, Bellsouth and Cingular and took the AT&T name? It was a small company suddenly thrust into a big company role. It struggled trying to fit, but it is now looking pretty good.
The same could happen here. These smaller companies will struggle as they become suddenly larger. It happens to every growing company. However, there is no reason they cannot have the same good result as AT&T if they start acting like the larger companies they are becoming.
Whether you know it or not — and even whether they know it or not — the music at the dance has changed. The slow dance ended, and now it’s time to rock ‘n’ roll.
The media has spent a lot of energy covering wireless, but I predict it will start to cover the wireline side again. One of its first focuses will be on the suddenly larger and important competitors like Windstream and CenturyLink. Like I said when closing my speech: Buckle up, guys. The ride is about to begin.
Jeff Kagan is an E-Commerce Times columnist and a wireless, telecom and technology analyst, author and consultant. Email him at [email protected].