Windstream Corporation

Updated About encyclopedia.com content Print Article Share Article
views updated

Windstream Corporation

4002 Rodney Parham Road
Little Rock, Arkansas 72212-2442
U.S.A.
Telephone: (501) 748-7000
Toll Free: (800) 843-9214
Web site: http://www.windstream.com

Public Company
Incorporated:
2004 as VALOR Communications Group Inc.
Employees: 1,232
Sales: $505.9 million (2005)
Stock Exchanges: New York
Ticker Symbol: WIN
NAIC: 517310 Telecommunications Resellers

Based in Little Rock, Arkansas, Windstream Corporation is the result of the 2006 merger between VALOR Communications Group and the wireline business of ALLTEL Corporation. Windstream provides telecommunications services to rural communities in 16 southwestern states, though mostly in Arkansas, New Mexico, Oklahoma, and Texas. Altogether the company operates nearly 550,000 telephone access lines. In addition to offering residential local and long-distance telephone services and broadband Internet access, Windstream provides satellite TV service through DISH Network. Windstream also offers phone, broadband, and equipment leasing to business and government customers, and wholesale service to other communications carriers. Windstream is a public company listed on the New York Stock Exchange.

ALLTEL ROOTS DATING TO 1943

The oldest predecessor of Windstream was Allied Telephone, founded in Little Rock, Arkansas, in 1943, by Charles Miller and Hugh Willbourn, Jr., who had worked together as telephone contractors and purchased the Grant County Telephone Company. Following World War II, they acquired four other small telephone companies in Arkansas, as Allied focused on offering telephone service to rural communities in the state. Other acquisitions followed over the years and Allied expanded into neighboring Missouri and Arkansas, and four other states. In 1983 it merged with Mid-Continent Telephone Company of Ohio to create ALLTEL.

The founding family of Mid-Continent had been involved in the Ohio telephone business since 1910, when Weldon Wood founded the Hudson Underground Telephone Company in Hudson, Ohio, by merging a pair of local phone companies. After serving in the military in World War II, his son-in-law took charge of what was now known as Western Reserve Telephone Company, and in the mid-1950s he took the first step in expanding the business by acquiring a 15 percent stake in Elyria Telephone Company. His son, Weldon W. Case, began managing the much larger Elyria Telephone. Expansive minded, the younger Case engineered a merger of Western Reserve Telephone and Elyria Telephone in 1960, creating Mid-Continent Telephone Corporation, based in Hudson, Ohio. Soon five other small Ohio telephone companies were brought into the fold. Scores more were to follow, about 90 over the next 20 years, as well as a pair of cable television companies. At the start of the 1980s, Mid-Continent was operating in 13 states serving some 700,000 customers.

Allied and Mid-Continent elected to join forces to form ALLTEL at a watershed moment in the telecommunications industry: The breakup of giant AT&T resulted in the creation of the seven regional Baby Bells, and new competition arrived in the sale of equipment and long-distance service. To compete in this changing landscape ALLTEL looked to aggressively diversify within the telecommunications field, in both regulated and non-regulated businesses. The company continued to beef up its traditional local telephone business, acquiring companies in West Virginia and Pennsylvania, and making capital improvements to its local telephone network. The company was also involved in selling telecommunications supplies through ALLTEL Supply, Inc., the company's most profitable subsidiary, and did well in the telephone directory business, producing 119 local directories in some 20 states. Arguably the most important step ALLTEL took during this period was the launch of its first wireless system, established in Charlotte, North Carolina, in 1985.

In the second half of the 1980s ALLTEL increased its cellular business with the 1987 acquisition of Cellular America. It also continued to follow a strategy of diversification, growing in a number of directions. CP National, a West Coast telephone company that also did work for the military, was bought for $300 million. ALLTEL Supply was joined by HWC Distribution Corporation, an electric wire and cable supply company picked up in 1989.

The late 1980s also saw the retirement of Weldon Case. In 1991 ALLTEL relocated its headquarters from Case's hometown of Hudson, Ohio, to Little Rock, Arkansas, where Allied Telephone had its roots. A year earlier ALLTEL had branched into the information processing business by purchasing Systematics, a developer of financial software that was merged with ALLTEL's data processing unit to form ALLTEL Information. By this time the economy was in recession and ALLTEL's local telephone business began to feel the pinch, as did the equipment distribution business. To offset declining profits in these areas, ALLTEL began to direct more attention to cellular communications and information services, running the back-office operations for financial institutions.

Cellular communications at the time was limited to car phones, and ALLTEL was able to establish a strong base of operations that would later pay off handsomely as technology made cell phones smaller and cheaper, turning them into a mass market product. ALLTEL acquired existing networks in its Sunbelt markets and then tied them together to provide coverage on the routes between those cities. While users of cellular car phones tended not to use their phones very much while driving in congested urban areas, they made frequent calls while on the highways between the cities ALLTEL served, such as Little Rock to Dallas, and Atlanta to the major cities of Florida. In 1993, as wireless technology began taking the step to mass penetration, ALLTEL opened its first cellular retail store.

In 1994 ALLTEL was named to the S&P 500 Index. The company continued to cast a wide net in the midto late 1990s. With the passage of the Telecommunications Act of 1996 that opened up regional telephone business, ALLTEL began offering long-distance service. It also competed against some of the Baby Bells in local phone service. In addition, the company bolstered its wireless holdings, paying $4.2 billion in 1998 to acquire 360 Communications Co., a deal that added markets in Virginia, North Carolina, Nevada, New Mexico, as well as parts of the Midwest, altogether acquiring 2.6 million customers in 15 states. As a result, in a single stroke ALLTEL tripled its cellular customer base and with $5 billion in revenues emerged as the seventh largest wireless provider in the United States.

COMPANY PERSPECTIVES

We believe our customers are better served by a company completely focused on providing advanced local communications and entertainment products and services.

In 2000, ALLTEL grew its wireless business further by forming a wireless exchange with Verizon Communications Inc., which had been created when Bell Atlantic and GTE Corp. had merged. To gain regulatory approval, the two companies had to divest some of their operations, including some of their wireless assets. ALLTEL was a beneficiary, participating in the new wireless exchange that covered 13 states and brought nearly 700,000 new customers. The wireless business was also increased through the acquisition of SBC Communications Inc., adding customers in Louisiana and the Gulf Coast. In 2002 ALLTEL spent $1.5 billion to CenturyTel Inc. to gain 700,000 wireless customers in Arkansas, Louisiana, Michigan, Texas, and Wisconsin. More wireless customers were added in 2003 with the purchase of assets in Mississippi from Cellular XL. A year later wireless properties were also acquired from MobileTel, U.S. Cellular, and TDS Telecom. Then, in early 2005, ALLTEL made its most significant deal, agreeing to pay about $6 billion in stock and cash to acquire Western Wireless Corporation. As a result ALLTEL added some 1.4 million wireless customers in 19 midwestern and western states that bordered ALLTEL's existing markets. In total the company had ten million wireless customers in 33 states. Moreover, ALLTEL received 1.6 million international customers in six countries.

GOING PUBLIC

ALLTEL was banking its future on wireless. Two years earlier it had sold its financial services division to Fidelity National Financial, around the same time that the landline business began a string of ten consecutive quarters of losing access lines. Thus, it was no surprise to the industry that later in 2005 ALLTEL announced that it would spin off its wireline business in order to merge it with VALOR Communications Group Inc. and focus on its wireless holdings.

VALOR was formed in September 1999 in Texas by 12 Hispanic investors to acquire the rural telephone exchange properties put up for auction by GTE Southwest Corporation (shortly before the merger of Bell Atlantic and GTE was finalized), picking up 540,000 rural phones lines in Texas, Oklahoma, and New Mexico. Among the Hispanic investors were former New Mexico Governor Toney Anaya and former Secretary of the Interior Manuel Lujan. To meet the reported $1.7 billion price tag, the new company also received funding from three New York City venture capital firms: Welsh Carson Anderson & Stowe, Vestar Capital Partners, and Citicorp Venture Capital. Also playing a role were the Reverend Jesse Jackson and the Hispanic Association on Corporate Responsibility, who lobbied GTE to sell the assets to the group of Hispanic investors.

VALOR started out with its headquarters in Washington, D.C., but soon moved to Irving, Texas, to bring jobs to the communities the company served. Call centers were also opened in Texarkana, Texas, and Carlsbad and Espanol, New Mexico. The company focused on the rural telephone business. It first began offering service in Oklahoma in July 2000, and service in New Mexico and Texas followed two months later. The next phase in VALOR's strategy was to add to what it could offer to customers, including long distance, Internet access, and such calling features as call waiting, caller ID, and voicemail. VALOR was able to add customers as well as services in early 2002 when it completed the purchase of Texas-based Kerrville Communications Corp. Not only did VALOR pick up 27,000 residential and business lines, it acquired a small cellular operation, Kerrville Cellular, and Advanced Tel-Com Systems Corp., which sold business communications systems.

In its first full year in operation, VALOR posted sales of $424.9 million, a number that would approach $500 million in 2003. In April 2004, VALOR announced plans to go public using income deposit securities, a novel type of financing more common in Canada. The plan was to gain a listing on the Toronto Stock Exchange, but the company finally elected to pursue a more traditional route. With Merrill Lynch, Banc of America Securities, and J.P. Morgan acting as the lead underwriters, VALOR completed an initial public offering of stock in February 2005, raising $441 million, the money earmarked to pay down debt. VALOR shares began trading on the New York Stock Exchange.

BIRTH OF WINDSTREAM

Before 2005 was over VALOR agreed to merge with ALLTEL's landline business spinoff. When the $9.1 billion deal was completed in July 2006, VALOR and ALLTEL decided to name the merged entity Windstream Corporation. Because VALOR was much smaller, its shareholders would receive 15 percent of the Windstream stock while ALLTEL shareholders received 85 percent. Windstream also retained VALOR's New York Stock Exchange listing, changing its ticker symbol to WIN, and set up its headquarters in Little Rock with ALLTEL's former chief financial officer, Jeff Gardner, serving as the new chief executive officer. The company started out with 3.4 million access lines in 16 states generating annual sales of about $3.4 billion.

KEY DATES

1943:
Allied Telephone Company is founded in Little Rock, Arkansas.
1960:
Mid-Continent Telephone Corporation is formed.
1983:
Allied and Mid-Continent merge to form ALLTEL.
1999:
VALOR Communications is formed.
2005:
VALOR is taken public.
2006:
VALOR and ALLTEL's landline business merge to form Windstream Corporation.

As had been the case with ALLTEL, the landline business had for years supported the growth of wireless, but now that wireless customers were growing each year while the landline customers were eroding, it made sense to split the two businesses, as the New York Times explained in a 2006 article: "Wireless companies, which are growing faster than traditional phone companies, are likely to attract investors interested in growth stocks. But investors looking for steadier returns are attracted to local phone companies, particularly those that operate in rural areas where competition is less fierce, because they usually pay big dividends."

Such companies as Verizon and SBC were likely to follow ALLTEL's lead and sell millions of rural access lines. Windstream was a natural suitor, but due to industry regulations, Windstream was limited in what it could acquire for the first couple of years as a public company. In the meantime it would have to be content to make smaller acquisitions if it chose to, but mostly the company would focus on selling new services to existing customers, who had been traditionally underserved in the rural areas. In essence, Windstream hoped to transform itself from a traditional telephone company into a broadband entertainment provider. Because of the prohibitive cost of providing video to its rural markets, this meant for the time being at least that Windstream would have to align itself with DISH, the satellite television provider. Eventually, the company would also have to offer a wireless option to its customers.

As part of its effort to become a telecommunications and entertainment services provider, Windstream launched a branding effort, developed by the New York advertising firm The Concept Farm, that centered around a pair of vintage 1953 pickup trucks that were painted green, symbolizing the historic legacy of Windstream. The restored, souped-up trucks, outfitted with high-tech toys including GPS navigation and a DVD entertainment system, began a 30-stop road tour in August 2006.

Ed Dinger

PRINCIPAL COMPETITORS

AT&T Inc.; BellSouth Corporation; Verizon Communications Inc.

FURTHER READING

Belson, Ken, "Alltel to End Local Service As a Spinoff Is Completed," New York Times, July 17, 2006, p. C9.

Higuera, Jonathan J., "Valor on the Front Lines," Hispanic Business, October 2001.

Holland, Leia, "Sale of Local Phone System Due by Sept. 1," Pecos Enterprise, July 20, 2000.

McElligott, Tim, "Pollyanna," Telephony, July 17, 2006, p. 27.

, "Windstream Stands Alone," Telephony, July 17, 2006, p. 18.

Stafford, Jim, "Windstream Begins Work to Promote Company," Daily Oklahoman, August 12, 2006.