Fast-growing Windstream plans to spend more than $1 billion this year as it moves from being a landline phone company to a broadband and data services provider.
The Little Rock-based company, which has its shareholders meeting Wednesday, has been rapidly setting up data centers that provide computing power and storage for businesses around the country and using its phone network as a vehicle for linking business customers to the data centers.
The company was formed in 2006 when it was spun off from Alltel, as Alltel stripped down to a wireless-only company before its acquisition by Verizon Wireless. Windstream still has the greater part of its business in phone lines and residential bundles of phone, Internet and satellite TV services, which reach customers in mainly rural areas in more than two dozen states.
But it's targeting the data end of the market in urban and rural areas as large and small businesses turn to cloud computing and other data outsourcing.
Windstream recently opened a data center in Little Rock and has two set to open soon in Houston and McLean, Va., giving it 21 in all, up from seven less than two years ago.
It also made two major acquisitions to quickly expand its data business. In late 2010, Windstream bought Raleigh, N.C.-based Hosted Solutions for $310 million. Last August, Windstream announced the purchase of New York-based Paetec Holding for $891 million.
The Hosted Solutions acquisition expanded Windstream's presence in the data services industry, and buying Paetec gave Windstream more penetration in broadband and business services.
Windstream kept Hosted Solutions executive Christopher "Kip" Turco on board as senior vice president for data center operations for Windstream.
Turco said Hosted Solutions was limited by its network, but the acquisition by Windstream solved that problem. The company boasts 115,000 miles of fiber-optic cable across 48 states.
D.A. Davidson & Co. upgraded Windstream from "neutral" to "buy" in February, but TheStreet.com downgraded Windstream last month from a "buy" to a "hold," saying the company wasn't building profits and that it managed its debt poorly. But the downgrade also noted that the company has been expanding profit margins and has increased revenue.
Windstream CEO Jeff Gardner said investors seeking sharp quarter-to-quarter gains won't find what they're looking for in his company, at least in the short term. Gardner said his focus is on setting up the company for long-term competition, and Windstream is investing $1.1 billion this year in its data centers and other growth.
"If I were an investor, rather than worried about it, I'd be excited," Gardner said.
The company, which has more than $6 billion in annual revenue, reports its first-quarter earnings on Thursday. It has projected flat revenues for 2012 and free cash flow of between $840 million and $950 million, which will enable it to sustain its dividend payout of 8.5 percent.
Windstream faces data competition from AT&T, Sprint and Verizon Communications.
A recent tour of the Little Rock data center included a look at the center's capacity for keeping electricity running to the machines. The systems are fully redundant, and the building is served by two transformers and has two full sets of generators so that the power to run the systems and keep them cool won't be interrupted.
Gardner said that with landline usage on the decline, the company quickly started looking for business segments it could grow.
"Our view of the world was simply that we needed to get more enterprise-focused and that we needed to invest and focus on businesses that were more growth-oriented, and so our natural focus then was on enterprise businesses, and the fastest growing space in the enterprise arena is cloud computing," he said.
Business services are the future for the Alltel spin-off, which expects to spend $1B this year on data centers and other infrastructure investments.