Jeff Kagan: Why Windstream CEO Must Change Direction

While speaking at the Windstream Board of Directors meeting in 2010, I talked about the changing industry. About new opportunities and new challenges: Where we have come from, where we are today and where we are heading tomorrow.

I talked about winners and losers. About how some companies were going to hit home runs going forward and how other companies were going to swing and miss.

One key point I stressed is that every winner was going to look very different going forward. Moving into new market opportunities. Creating the next growth waves.

Finding Success by Riding the Growth Wave

So the question I asked in 2010 was how would Windstream change? What would it look like moving forward? What was the long-term growth plan? That information was key not only for the company, but for investors, analysts and customers to understand as well.

The Growth Wave, which I have discussed with you on a regular basis, is how every company and every growth opportunity travels. It rides this wave. It grows, then crests then falls. Every time.

We talked about how some companies would continue to win because they would continue to update and to change and start the next growth wave, and the next and so on.

We also talked about how other companies who didn’t pay attention to this principal were going to ride their single wave up, crest and back down again. That is something every company should avoid.

To be clear, I gave plenty of examples and made plenty of predictions.

How companies like Apple Inc. (APPL)  would continue to grow with new products and new growth waves. The Apple iPhone is their strongest and longest growth wave. And it’s still on a growth trajectory.

However, Apple's iPod has already grown, crested and is now falling. Waves don’t last forever. The same may be starting to happen with their iPad business. There was significant growth and Apple owns this tablet space, but growth is slowing after just a few short years.

Other companies like Motorola Solutions Inc. (MSI) , Nokia Corporation ($ADR), Blackberry Ltd (BBRY)  rode a single wave. They didn’t create the next Wave, so they simply rode their single wave up and down.

There is no escaping this Wave formula. This is the key point I wanted to share with them in my remarks.

The problem was simple. Windstream was on the landline side of the business and that side was on the falling side of the growth wave.

Look at AT&T (T) , Verizon Communications Inc. (VZ)  and CenturyLink Inc. (CTL)  as an example. Plain old telephone service (or POTS) reached its peak around the year 2000. It has been shrinking ever since.

If these companies didn’t update and create the next Waves to grow on, they would have withered along with POTS.

However AT&T and Verizon have rapidly expanded into other business segments like wireless, television over IPTV, their Uverse and FiOS business and more.

New Waves Lead to Extended Growth 

These are new and different growth waves. Plus both AT&T and Verizon continue to create new waves for growth in coming years.

On the other hand, CenturyLink is not expanding as quickly into these new waves or areas of growth.

This is what I mean when I say Windstream must change direction.

This was the opportunity and the warning for Windstream I was sharing at the Board of Directors meeting. This is the point I wanted to make to the leadership.

And this is the same message I am putting forth today.

Over the last four years, Windstream has done reasonably well. They continued to grow through acquisition. This was helpful, and it helped them grow. However Windstream was still in a shrinking side of the business wave.

Where would growth come from going forward?

While this strategy showed growth and helped earnings in the shorter run, this still left a longer-term question that needed to be answered. The same problem every company today faces, strategy on the growth side of the Wave.

So going forward Windstream needs to have a rapid growth plan in different areas. New growth waves to ride.

Today, Windstream is a wire line company. They are not wireless any longer. They spun that business away. Sort of like cable television companies Comcast Corporation (CMCSA) , Time Warner Cable (TWX)  and Cox Communications Inc. ($COX).

Could Windstream successfully re-enter the wireless space? They could if they partner with a strong wireless carrier like AT&T, Verizon or Sprint (S)  and have innovative ideas. This could open the door to all sorts of new growth opportunities they could mix and mingle with their wire line services.

Just look at what companies like Comcast and Time Warner Cable are doing using wireless apps on smartphones and tablets. They give users the ability to watch programming at any time and any place. This is new and is a new growth Wave.

These cable TV companies are reinventing the traditional cable television experience because cable television is on the falling side of the growth wave.

It’s important for wire line companies to have wireless features for long-term growth. There are also lots of new opportunities on the wire line side of the business. Don’t be fooled, wireless is rapidly growing, but so is wire line.

Wire Line Lives On, but Evolves

Wire line is here to stay. However the wire line world of tomorrow looks very different than yesterday.

Wire line is over the Internet using IP and an assortment of private networks. Large and small companies are all going to need this kind of network going forward.

In fact more than 80% of all the data we have ever created happened in just the last two to three years. Growth is incredibly strong. This is where the opportunity lies. How will Windstream leverage this?

Simple communications is going to be a mix of wireless and wire line. It is going to travel over the voice network and the data network. In fact if we look ahead, everything is going to be carried over data networks, wireless and wire line.

So there is plenty of growth and opportunity going forward if you have innovative thinking. Just look at companies like Apple, Google, AT&T and Verizon as a few good examples over the last several years.

The trick is to see the future and built toward it. So the question for Windstream is where will long-term growth come from? What will new CEO Tony Thomas do to change direction and start and accelerate the next growth waves for the company?

So is Windstream on the growth side or the falling side of the Wave? If they do this right, we could be on the verge of seeing new growth for this sleepy giant. We’ll just have to watch and see what happens next.