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WIN to Extend its Ethernet Plans

Zacks Equity Research

Windstream Corporation (WIN), which is one of the largest U.S. rural local exchange carriers (:RLEC), has plans to extend its Carrier Switched Ethernet service across more than 300 CLEC footprints.

Earlier, Carrier Switched Ethernet service was available in Windstream's ILEC footprint, so deployment of the Ethernet technology will allow other telecom operators to use it via regional Network-to-Network Interfaces (NNIs).

Carrier Switched Ethernet service will not only improve the quality of network speed but will also reduce cost as the service will be available through copper wire or fiber optic cable. Moreover, it will also be beneficial to the end users as they will get network speed of 3 Mbps to 1 Gbps.

We believe Windstream remains poised to gain from high-speed Internet services that are benefiting from increased market traction. Additionally, the company’s acquisition of PAETEC will also be aided by expanding service offerings, increasing wireless data backhaul services and offering managed services and cloud computing.

Further, Windstream’s deleveraging initiatives and refinancing activities are expected to generate healthy cash flows, attracting investors through a high dividend payout in the due course.

However, we remain on the sidelines due to competitive pressure from peers like Frontier Communications (FTR), a highly leveraged balance sheet as well as continued access-line erosion, which could partially be offset by broadband opportunities.

We are currently maintaining our long-term Neutral recommendation on Windstream. Currently, it has a Zacks #3 Rank implying a short-term Hold rating on the stock.

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