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1
Windstream Prospective: The Future for CWA-represented
Employees
CWA Telecommunications
and Technologies Leadership
Conference
January 2017, San Juan, PR
The Communications Industry is Dynamic
Wireless data exploding – Growth of 1,013% 2011-13; Another 700% by 2020
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Smartphone Usage
Texting/Email Internet
Camera/Video Social networking
Photo-sharing Music
Weather/News Internet of Things
Smart cities Self-driving cars
Environmental monitoring Home automation
Manufacturing innovation Health monitoring
Landline, however, is Shrinking
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
H1 2009 H2 2009 H1 2010 H2 2010H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015
Percentage of Adults Living in Households with/without Wireless and Landlines
Landline with Wireless
Wireless Only
Landline Only
Phoneless
Source: FCC Wireless Survey 2016
48%
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Wireless Networks Demand Fiber Backhaul
Wireless and fiber complementary
– Backhaul = cable between towers and
central offices
5G will require order of magnitude
more backhaul
– VZ uses 30,000 towers for 4G
– It will need several million for 5G
Acquisitions
– VZ purchase of XO Communications (Feb.
2016)
– CenturyLink purchase offer of Level 3
(Nov. 2016)
– Windstream purchase offer of EarthLink
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Will synergies between
landline and fiber lead to
mergers with T-Mobile / Sprint?
Landline Landscape
Consolidated Companies Landline Only Companies
AT&T Verizon CenturyLink Frontier
Windstream Fairpoint
Cable Companies Fiber-only Companies
Comcast Charter Level 3 Crown Castle
Cox Altice Zayo XO
Communications
Wireless-only Companies
T-Mobile Sprint 5
Landline Only Companies
Margins lower in landline than wireless
– Consolidated companies benefit from wireless
units
– Consolidated companies also moving into content
Task: pivot from POTS to fiber
Manage transition from analog to digital
Prepare for next stage of wired Internet
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Windstream Growth, Part 1
2000: Valor Telecom formed to take over GTE assets purchased by
Verizon
2005: Private company went public as Valor Communications
Group (NYSE: VGC)
2006: Acquired Alltel wireline assets. Name changed to
Windstream Corp.(NASDAQ: WIN)
2007: Acquired wireline assets CT Communications (NC)
2007: Sold Windstream Yellow Pages
2009: Acquired D&E Communications (PA) (wireline assets)
2009: Acquired Iowa Telecom
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Windstream Growth, Part 2
2010: Acquired NoVox Communications (local exchange
carrier in NC)
2010: Acquired Q-Comm Corporation (fiber in 22 states and
access lines in Evanston, IN)
2010: Acquired Hosted Solutions (cloud management)
2011: Acquired PAETEC Holding Company (fiber and local
exchange carrier)
2014: Acquired Business Only (business wireline in IL, NJ, NY,
WI)
2015: Spinoff of CLEC assets to Communications Sales and
Leasing (CS&L), a real estate investment trust (REIT)
2016: Purchase offer of Earthlink Holdings (fiber)
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Windstream by the numbers
Operates in 29 states
12,326 employees
– 1,047 CWA-represented
– 1,022 CWA members
– 486 IBEW represented
EarthLink
– 2,138 employees, all
unrepresented
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10,793
1,533
Windstream Union Presence
Organized
Employees
Unorganized
Employees
Financialization
Defined: The process of financial extraction from service or manufacturing companies at the expense of employees, customers, and communities for the benefit of shareholders. In public companies this takes place typically through dividends and stock buybacks.
2010-2015: Dividends distributed to shareholders have exceeded net income three-and-a-half-fold. The process has continued into 2016.
High level of debt. Windstream debt/EBITDA was x5.2 in 2015. At AT&T, debt/EBITDA was x2.8. At Verizon, debt/EBITDA was x2.2. Debt-driven growth squeezes all aspects of the company.
Result: less cash for employment, employee benefits, and higher prices for consumers
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Financial Metrics
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Windstream Communications
Financial Information
$ million 2011 2012 2013 2014 2015 1Q2016 2Q2016 3Q2016
Revenue $4,279.6 $6,139.5 $5,988.1 $5,829.5 $5,765.3 $1,373.4 $1,359.6 $1,344.9
EBITDA $1,881.5 $2,274.1 $2,389.3 $1,969.8 $1,991.6 $471.9 $471.3 $455.8
Net income $169.5 $168.0 $241.0 -$39.5 $27.4 -$231.9 $1.5 -$66.2
Total Debt $9,269.6 $9,086.0 $8,779.0 $8,722.2 $10,375.3 $10,618.5 $9,980.1 $9,965.8
Debt/EBITDA 4.9 4.0 3.7 4.4 5.2 5.6 5.3 5.5
Dividends $509.6 $588.0 $593.6 $602.2 $369.2 $14.9 $14.6 $14.6
Stock Buybacks $0.0 $0.0 $0.0 $0.0 $0.0 $28.9 $0.0 $0.0
Dividends +
Buybacks as
Percentage Net
Income 300.65% 350.00% 246.31% n/a 1347.45% n/a 973.33% n/a
CEO Pay
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Windstream CEO Compensation
A B C D E F G H I
Performance Pay
CEO
Total Pay
Received
by CEO
(D+E+F+G+
H+I) Salary All other
Value
Realized on
Time-Vested
Stock
Non-equity
incentive
plan comp
Value
Realized on
Exercise of
Options
Value Realized
on
Performance-
Vested Stock
2015 A. Thomas $2,796,831 $1,000,000 $59,571 $243,630 $1,250,000 $0 $243,630
2014 A. Thomas $1,537,809 $538,461 $61,843 $405,053 $127,400 $0 $405,053
2013 J.R. Gardner $4,895,380 $1,000,000 $90,840 $311,862 $969,435 $0 $2,523,243
2012 J.R. Gardner $6,620,983 $998,615 $117,107 $471,929 $1,215,000 $0 $3,818,332
2011 J.R. Gardner $7,677,182 $991,000 $132,747 $529,671 $1,738,246 $0 $4,285,518
NOTE Gardner resigned December 2014 and was replaced by Thomas. He received $6,437,867 in compensation
in 2014. He received $3,000,000 severance in 2015
Shareholders Have Not Yet Benefited
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240.42%
213.03%
100.17%
14.05%
-9.70% -15.59%
Verizon AT&T S&P 500 CTL WIN FTR
Change in Telecom Share Prices 1/1/10 to 1/17/17
Summing Up…
Landlines may be declining but telecom industry is
dynamic
Wireless data explosion dependent on fiber
deployment
Landline-only companies at competitive
disadvantage. Urge to build out fiber
Purchase offer of EarthLink extends fiber footprint
and portends move to business services
Windstream taking money out of company and
rewarding shareholders
14