EUR 850.00 For Business Accounts Only

Morningstar | Uncertainty Stemming From Windstream’s Bankruptcy Leaves Uniti Unable to Execute Its Long-Term Plan

As we see it, Uniti was in a weak position when it was created in 2015. One hundred percent of its assets were reserved exclusively for Windstream's use, and Windstream was its sole customer. We think the firm has done an excellent job diversifying and entering promising businesses, but it remains very high risk with more than half of its revenue and over 85% of its EBITDA coming from Windstream, a firm in bankruptcy. Diversification has come primarily via acquisitions and fiber network construction, which spawned the firm's fiber infrastructure segment, where Uniti leases dark and lit fiber and small cells to wireless carriers and other enterprises. While we generally are skeptical about the economics of such businesses, we see Uniti as better positioned than many competitors because it focuses on second and third-tier cities, where we don't think competition is quite as intense. For example, Crown Castle explicitly proclaims its footprint covers only the largest U.S. cities. In addition, the major cable providers in the U.S. are absent over much of Uniti's footprint. We expect fiber use to continue growing substantially given constantly increasing data consumption across wired and wireless networks, and we think Uniti is well positioned to capitalize in its niche.We also like Uniti's leasing business, where it has engaged in sale-leaseback transactions to buy other companies' fiber and immediately lease it back at attractive rates, but we are unconvinced Leasing can materially grow beyond Windstream. We don't think Uniti adds much value beyond providing capital, so we expect virtually any firm with access to cheap financing can compete for these deals. As such, we think suitors will compete on price, and finding sizable deals at attractive rates will be increasingly difficult.Uniti also has towers in the U.S. Based on revenue, the segment is less than one tenth the size of fiber infrastructure, and we don't expect it to be a meaningful contributor in the future. Management doesn't expect to compete with the big incumbents, so we don't think it will find a sizable market opportunity here.