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Where can Windstream (WIN) go from here? It is an oddity for the telecommunications market as it is not a player in the wireless space. What can this company do to increase value for existing shareholders and attract new ones?

Windstream provides advanced network communications including cloud computing and managed services to businesses in the U.S. It also offers broadband, phone and digital television services to consumers, primarily in rural areas of the U.S.

Windstream's common shares trade around $12, have a 52 week range of $13.57 and $10.76. It has a price earnings ratio of 35:58, earnings per share of $0.33 and a dividend yield of 8.50%. Windstream has total cash of $227 million and total debt of $9.27 billion. Its book value per share is $2.56. Market capitalization is $6.86 billion.

Windstream ended 2011 with 1.9 million voice lines, down 20,000 from the year previously. Customer service revenues were down 2.5% from the same period in 2010. For the full year they were down 2.6% from the year 2010. Earnings on traditional land line services have declined; however, the company added 1.4 million new high speed subscribers in the last quarter and this is no small feat in a very competitive space.

Instead of expending vast amounts of capital to enter and compete in the wireless space, Windstream has opted to enter into the managed services and cloud computing market. This market will allow Windstream to exceed its current geographic boundaries and provide services to business clients as well as households. Wireless is experiencing slow growth in the U.S. and it is difficult for companies to enter a space that is saturated with carriers and ever changing service packages and pricing bundles. Cloud computing offers an entry for a well capitalized company to a rapidly growing market.

In contrast, Frontier (FTR) is one of the largest rural local exchange carriers in the U.S. offering local and long distance telephone service, broadband internet, digital television and computer technical support to residential and business customers in 27 states. Frontier purchased 4.8 million landlines, comprising all landline assets in 12 states, from Verizon Communications (NYSE:VZ) in 2009. The company purchased Verizon's fiber-optic cable system in six states and promotes this as its FiOS voice, Internet and television services in those areas.

Frontier trades around $4.30, has a year high of $8.97 and a year low of $3.81. It has a price earnings ratio of 28:47 and earnings per share of $0.15. The dividend yield is 9.60%. The market capitalization is $4.25 billion. The company has total cash of $326.09 million and total debt of $8.3 billion. The book value per share is $4.48. The float of 988.91 million shares is 46.3% owned by institutions, and 0.17% by insiders leaving approximately 53.6% held by retail investors. The percentage of shares sold short at March 15, 2012 is 17.3% or 171.85 million shares.

The company reported 2011 fourth quarter revenue of $1,283.2 million compared with $1.358,7 million for the same period of 2010. The decrease is largely attributed to decreases in the numbers for residential and business customers, switched access, video and other revenue. However, the company increased its high speed internet customers by 9,300 during the fourth quarter of 2011 to 1,764,200 customers. It also added 1,000 video customers during the fourth quarter. It lost 5,900 FiOS video customers during the period. Net income was $42.2 million or $0.04 per share as compared to $46.0 million or $0.05 per share in the fourth quarter of 2010. Free cash flow in the quarter was $357.7 million for the fourth quarter and $1,105.7 million for the full year of 2011. Dividend payouts represent 52% of the free cash flow in the fourth quarter and 68% of the free cash flow for the full year of 2011. Capital expenditures in 2011 were $118 million in the fourth quarter and $748 million for the full year in 2011. Guidance for 2012 has operating expenses at approximately $80 million and expenditures for integration activities of $40 million. Free cash flow is expected to be in the $900 million to $1 billion range with capital expenditures at $725 to $775 million.

In February 2011, Frontier announced a quarterly dividend reduction to $0.10 from $0.1875 in order to reduce debt and to make cash available to invest in network and other strategic initiatives. Frontier's stock price has taken a beating in the last year and it is trading near the 52 week low. There is a significant short position and a healthy percentage of the float is in retail investor hands, which would explain the trading range. Dividend investors have exited the stock. There is value in the company and the share performance will be dependent on management's ability to execute on the performance of these assets. As an alternative, some or all of its assets are worth acquiring by a larger company in this price range.

Forrester Research estimates that the global cloud computing market will be $241 billion in 2020 compared to $40.7 billion in 2010. Forrester also states that software as a service (SAAS) with provide more growth opportunity than any other segment in the cloud computing services market. However, infrastructure as a service (IaaS) will experience rapid growth in the next three years. Other reports estimate that by 2012 80% of Fortune 1000 enterprises will be paying for some cloud computing services and 30% of these companies will pay for cloud infrastructure services.

Windstream announced a new high speed internet and entertainment service on March 1, 2012. The launch of this Merge product gives subscribers access to first run and classic television, gaming and social networks and allows them to view all this content on their home television screens. It is available in all Windstream residential service areas. It also offers unlimited nationwide calling and U.S. based customer support - a big seller to most consumers in the U.S.

2012 has seen the company announce broadband stimulus projects in certain states funded under the American Recovery and Reinvestment Act of 2009. Other announcements contained details of new systems for small business, customer information protection initiatives and assistance to K-12 schools with discount funds for internet access.

The company issued guidance for 2012 indicating a drop in revenues of 1%, and capital expenditures of $950 million to $1.05 billion.

The company is not making any extremely positive prognostications for its stock price performance in 2012. It is a very conservative company that, by the appearances of the information contained in its news releases, has a culture of being very focused on creating sustainable revenue streams. Its broadband and entertainment service offerings and its entry into managed services and cloud computing are a wise place to make capital expenditures. Improving and augmenting any services to households in the markets that Windstream has captured is a good move. The company portrays a culture of caring about the customers and communities that it services. It fosters a lot of loyalty which translates to customer retention. The wireless business does not have a lot of customer retention as the nature of the business is either transient - people needing wireless for a short period of time - or a more competitive package for the consumer needs comes to market and the account holder will switch carriers. Managed services and cloud computing for businesses provides a good base for long term clients.

While providing services in rural areas of the U.S. is a finite customer base, revenues from providing broadband and entertainment systems is a durable customer base where there is not much competition. Managed and cloud services will provide the greatest upside potential for investors in this company. The stock is trading at the low end of its yearly range. It is possible that the share price will continue to decrease in the short term, but the value of the company will be enhanced by the company's recent acquisitions and branded entertainment product. The stock is a buy at these levels for a patient investor.

Source: Windstream Looks Perfect For Patient Investors