Windstream’s Fiber & Copper REIT

I’m just fascinated by this move by Windstream (articles from Bloomberg and WSJ) to spin off their physical network assets into a new entity.  Windstream is taking their fiber and copper assets and reclassifying them as real estate and spinning them off, raising some cash to pay down their mountain of debt and improve their cash flow.

While the press is up in arms about this move as some more of corporate America’s tax chicanery (New York Times with the outrage and the retort by Forbes), I think there is a more interesting aspect of this, at least from a telecom cost perspective.  If more telecom companies follow suit, bandwidth truly becomes a commodity, sold as white label bandwidth in bulk to carriers and put into corporate structures that resemble utilities or resource extraction LLPs. It is interesting to note that the Windstream spin-off will have a total of 25 employees running a $650M a year operation – similar in staffing to a REIT managing apartments, or a natural gas pipeline.

The end result could be less pressure from the likes of Verizon and AT&T to throttle bandwidth from companies like Netflix, helping the Net Neutrality cause. I say this because if the carriers are simply leasing white label bandwidth from a telecom REIT or REITs, they may not need to worry as much about spare capacity, peak load times, or intercity routing when pricing services for customers. Similarly, the barrier to entry for new carriers is lowered even further, as you just need to cut a check instead of lay miles of fiber to get in the game, putting further pressure on pricing and on carriers to differentiate their offerings to deliver value to their customers.

For our business customers, this financial maneuver signals that telecom costs will continue their downward slide.