Windstream (News - Alert) is spinning off its fiber and copper networks and other real estate into a new real estate investment trust, and then lease use of the assets to support its communications business.

Windstream expects to retire approximately $3.2 billion of debt as part of the transaction, resulting in the company deleveraging to 3.3 times “debt to adjusted operating income before depreciation and amortization” immediately at closing.

Windstream will continue to have sole responsibility for meeting its existing regulatory obligations following the creation of the REIT. The REIT will focus on expanding and diversifying its assets and tenants through future acquisitions.

Customers will see no change in their rates, scope or terms of service as a result of the transaction.

The REIT will have approximately 25 employees. Tony Thomas, Windstream's chief financial officer, will become CEO of the REIT. Francis X. "Skip" Frantz, a Windstream director, will serve as chairman of the REIT's board.

Windstream is not the first telecom firm to use the REIT approach. Mobile tower companies including American Tower (News - Alert) Corp. have done so. Data centers--including Digital Realty Trust and  Dupont Fabros Technology also have done so.

The issue is whether REIT conversion might also be considered by much-larger firms such as AT&T (News - Alert) and Verizon. The big advantage is tax treatment. By converting some physical assets to a REIT, Windstream lowers its tax obligations and increases its cash flow.

REITs avoid paying federal income tax in the United States, paying out  at least 90 percent of their taxable income to shareholders.

To be sure, tower companies had been using net operating losses to reduce their tax obligations. But tax strategies change when those NOL credits are consumed. Hence the conversion to REIT status.

Whether such a move would be attract for firms the size of AT&T or Verizon (News - Alert) is unclear. Both of those firms might well benefit, on a tax basis, from converting at least some assets such as buildings, into a REIT.

That could free up cash flow, as Windstream expects. But there are certain to be countervailing arguments.

More likely are similar moves by Frontier Communications or CenturyLink (News - Alert), and even for firms such as Comcast.