This year has been particularly challenging for the traditional wireline industry, while Windstream appears to face the largest predicament moving forward.
“Despite the relief from cutting its dividend, (Windstream) still needs to address debt maturities coming due in 2020,” Barclays said. “While Frontier faces a similar maturity wall, incremental cash flow generation from any dividend cut could provide an additional lever.”
When reporting a $68 million loss for its second quarter, Windstream announced elimination of the quarterly shareholder dividend effective immediately, and authorized the repurchase of up to $90 million of the company’s common stock through the first quarter of 2019.
“In our view, traditional wireline providers will continue to face an uphill battle regardless of end market,” Barclays said. “This past year has been particularly challenging. Year to date, companies have reported accelerating year-over-year losses in legacy services and lower-than-expected growth in strategic revenue-growth initiatives. While operators continue to speak optimistically about the current demand backdrop, the lack of financial flexibility (i.e. weak free-cash-flow generation, high debt levels and dividend commitments), will make the process of transitioning their businesses towards more favorable growth areas difficult, in our view.”
Windstream is adopting a new business unit structure and combining its operations into two units: cloud and connectivity, and consumer and SMB. The company is consolidating the enterprise, CLEC C/SMB and wholesale segments into the cloud and connectivity unit.
“We believe Frontier and CenturyLink will increasingly rely on cost cutting/synergy upside to protect their dividend commitments,” Barclays said. “In our view, relative to CenturyLink, Frontier’s dividend is more at risk in being cut further over the near term. Longer-term questions are, however, likely to linger particularly given what we believe will be a difficult integration process.”