In our May 14th research report on CenturyLink (CTL), we couldn’t help but notice how CenturyLink and its rural telecom competitors have had numerous dealings with Verizon Communications (VZ). We have decided to explore this further by comparing how each rural telecom company’s deals with Verizon have worked out by comparing each firm in a series of head-to-head reports. We first compared FairPoint (FRP) against CenturyLink because FairPoint acquired Verizon’s Northern New England operations. Despite FRP surprising us with a higher broadband customer growth rate, we could see that CenturyLink’s deals with Verizon worked out better than FairPoint’s purchase of Verizon Northern New England. We can make this conclusion because CenturyLink has not been forced into bankruptcy, unlike FairPoint. On September 11, we compared Frontier (FTR) against CenturyLink and we could see that CenturyLink is a much stronger companythan Frontier and that Frontier should not have purchased the legacy GTE leftovers that Verizon was selling. In this report we will be comparing Windstream (WIN) versus CenturyLink. We believe that Windstream is a much better competitor to pit against CenturyLink than FRP and FTR because Windstream acquired the regional data center and managed data solutions firm Hosted Solutions in 2010 and followed CenturyLink’s acquisition of cloud-computing infrastructure firm Savvis with the acquisition of PAETEC (PAET). We also like the fact that CenturyLink boasts a 6.92% dividend yield and Windstream’s yield is 9.14% as of September 24th.

Evaluating Company Dealings with Verizon

Windstream: Windstream was formed in 2006 from the merger of Alltel’s wireline business with VALOR Communications Group. VALOR was founded in 2000 through the acquisition of assets from GTE Southwest that Verizon had disposed of in order to gain regulatory approval to acquire GTE in 2000.

CenturyLink: CenturyLink had also acquired assets from GTE Southwest from 2000-2002 (Arkansas, Oklahoma, and Missouri). CenturyLink also acquired GTE’s Alabama operations from Verizon in 2002. CenturyLink paid for these acquisitions by selling its wireless operations to Alltel in 2002. Alltel Wireless was later acquired by Verizon Wireless in 2009. CenturyLink’s predecessor Qwest Communications (Q) had turned its Qwest Wireless MVNO over to Verizon Wireless in exchange for earning the right to be a reseller of Verizon Wireless products and services. When CenturyLink acquired Qwest in 2011, it assumed Qwest’s reseller agreement with Verizon Wireless.

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