Windstream, a leading provider of advanced network communications, announced plans to spin off a portion of its network assets into an independent Real Estate Investment Trust (REIT). The assets Windstream plan on spinning out comprise of fiber and copper networks in addition to real estate that will serve as a REIT. Windstream will be leased an initial estimated rent payment of $650 million per year by this REIT.
One condition under the REIT agreement is Windstream’s pledge to widen its 10 Mbps service. By 2018, its availability is expected to reach more than 80 percent of the company’s customers. Another pledge under the agreement is to extend its 24 Mbps speed tiers. The service’s availability will double and expand to more than 30 percent of customers by 2018.
This development could be beneficial to customers by providing IP services and expanding fiber into more buildings. In addition, service providers in need of lowering debt could use the REIT to rent its copper and fiber facilities. “This transaction is going to allow us to transition faster to IP, which will make us a more competitive enterprise player,” said Windstream CEO Jeff Gardner.
Although this development has been deemed beneficial, it comes with challenges. Windstream has obtained a private letter ruling (PLR), which addresses the tax-free spinoff and qualifies the network assets as real property, but has yet to gain several state regulatory approvals. Another challenge Windstream faces is the lack of clarification regarding how to visualize the network asset separation.
Other larger telecommunication companies such as AT&T, Verizon and Level 3 Communications have looked into REIT development, but financial analysts assert that it would be more difficult. Kevin Smithen, an analyst with Macquarie Capital, wrote in a report, “Windstream’s REIT conversion is simpler than for its larger peers as AT&T and Verizon…will need to get individual State PUC approvals, and would have to prepay pension liabilities. Additionally, if ATT and Verizon spin off their U-Verse and FiOS infrastructure, cable competitors and metro fiber players will have access to those assets or Sprint, T-Mobile and DISH Network access to their cell sites/backhaul.” For now, other larger service providers will monitor how this development plays out for Windstream before making an executive decision to follow Windstream.
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