Windstream pushes away from Dycom amid fiber buildout

The US fiber broadband industry appears to be poised to enter a historic period of growth. And Windstream wants to control its own fiber fate as a result.

"We decided to in-source a substantial portion of our construction needs as part of our multi-year, multi-billion dollar fiber network investment program," Windstream spokesperson David Avery wrote in response to questions from Light Reading. "We expect this program will allow us to more closely manage construction costs, quality and timelines."

Although that's clearly good news for the 1,000 technicians Windstream has promised to hire for its five-year, $2 billion fiber build project, it's not necessarily what executives at Dycom wanted to hear. According to the financial analysts at WestPark Capital, Windstream's shift to in-house fiber construction is a major blow to network-construction company Dycom, which until recently handled the bulk of Windstream's construction needs.

"Dycom has been, and remains, a trusted construction partner of Windstream. They have retained a portion of our existing construction work and will be invited to participate along with our other trusted construction partners on build projects that exceed our internal construction capacity," explained Windstream's Avery.

Losing a skirmish, winning the war

Nonetheless, Dycom's executives appear resigned to the loss of much of Windstream's fiber-buildout business. "It's just a cost that we have to bear," explained the company's CEO, Steve Nielsen, during Dycom's recent quarterly earnings conference call, according to a Seeking Alpha transcript of the event. Nielsen acknowledged that a major Dycom customer was moving to in-house construction, but didn't name Windstream specifically. Windstream is Dycom's fifth-largest customer.

Overall, though, Nielsen's messaging around Dycom's fiber opportunity was: Don't worry. "Lots of [Dycom] customers are kicking off large fiber programs, and the largest of which, of course, is AT&T," he said, adding that other Dycom customers like Frontier Communications and Ziply Fiber are also planning large fiber buildouts.

"Increasing access to high-capacity telecommunications continues to be crucial to society, especially in rural America," he added, pointing to US government programs like the Rural Digital Opportunity Fund (RDOF) that are funneling billions of dollars into the construction of new fiber networks in rural areas.

That current spending may soon be dwarfed by President Biden's infrastructure spending proposal, which appears poised to receive bipartisan support for up to $65 billion in funding for broadband in urban and rural areas.

A good time for fiber sales

The analysts at WestPark Capital pointed out that Biden's spending plan would essentially double the size of the US fiber access market. They calculated the current addressable market for fiber sits at just $1.3 billion per year, and that federal funding could inject up to $13 billion per year into the US broadband market.

As a result, a number of industry observers are bracing for historic levels of spending on fiber networks across the country, considering companies ranging from AT&T, Charter Communications and Altice USA to Consolidated Communications and Lumen Technologies have already pledged to expand their fiber networks ahead of any potential government infrastructure stimulus money.

"There has never been a time in my memory when the industry has been this busy. It's no wonder that we're seeing a backlog in fiber delivery times. It's probably a good year to be a fiber salesperson," wrote Doug Dawson with CCG Consulting in a recent post.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano