Windstream Communications held an analyst conference in New York’s financial district today to assess its performance in 2006 and its position in the market place after completing its spinoff from Alltel last July, as well as lay out its reporting methods moving forward. The company succeeded in achieving its overall goal: consistency.

By meeting or exceeding all guidance metrics for 2006 with $3.2 billion in revenue and $1.7 in operating income before depreciation and amortization, despite the distractions of completing the separation for Alltel, integrating Valor Communications (which it acquired at the same time) and basically building a company from scratch, Jeff Gardner, president and CEO of Windstream, said, “[Our performance] validates the fundamental premise we had at the start, that by singly focusing on our wireline business and focusing in an aggressive way, we could make it successful over a long period of time.”

Gardner said he is pleased with where the company is seven months after its formation, but said it is now time to focus on the future. And that future for Windstream is broadband.

“We believe broadband is the future, and the player with the broadband pipe into the home has a distinct advantage. With 206,000 new net broadband customers in 2006, Windstream now has a 21% penetration rate.

While Windstream plans to get even more aggressive in “asking for the sale” with broadband customers, it also plans to grow through acquisition thanks to the cash position management has put the company in through cost cutting, disciplined capital spending and closing in on $40 million in synergies with the Valor integration.

“This is consistent with how we thought about this company when we put it together,” Gardner said.

Growth through acquisition is a theme Gardner has stressed since the beginning. So when pressed why he has let recent M&A opportunities pass by (such as FairPoint’s acquisition of Verizon access lines in Maine, New Hampshire and Vermont), Gardner said, “Our size and cost structure uniquely qualify us to grow this business through acquisition over,” he said. “But we emphasize discipline. In this space we feel it is very important that you don’t overpay. When you think about deals as must haves, that is when you start overpaying.”

Gardner said that another thing that benefits Windstream’s long-term stability is that it is comparatively less dependent on Universal Service Funds as a source of revenue. However, he said that won’t stop the company from continuing to improve its cost structure, which USF distribution is partly dependent on.

“We could leave the cost structure the same and make the most of drawing on USF, but we continue to believe it makes sense to deal with our cost structure. Not everyone in the industry feels that way,” Gardner said.

Windstream plans to be more aggressive in helping to influence policy that governs USF, inter-carrier compensation and other regulatory issues. It is standing firmly behind the Missoula Plan for Inter-carrier compensation.

As it works on its cost structure, the company won’t give guidance on where it will spend money to improve the network and achieve one of its other primary goals: increase bandwidth speed. However, it currently spends approximately 70% of its capex dollars on maintenance and 30% on growth and improvement. And if its consistency model holds true, that’s what we can expect in the near future.

Other cost-cutting initiatives include the restructuring project announced in the fourth quarter, but planned much earlier. It will include reorganizing the IT department and the companies first, using outsourcing for development work.

“We feel it was the right time for our company to utilize that business methodology,” said Brent Whittington, executive vice president and CFO at Windstream.

The company also will consolidate call centers while leaving room for the potential growth from future acquisitions. “Customer service and engineering were shared services that didn’t get a lot of focus at Alltel as far as cost savings,” Whittington said.

Windstream’s fiber builds will be focused in urban areas where it faces the most competition, but also in any new plant that is installed.

As for wireless, Gardner said he doesn’t see Windstream participating in the upcoming 700 MHz spectrum auction. Instead the company is looking at potential relationships with AT&T Wireless and Verizon Wireless.