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CenturyLink legacy declines offset by consumer IP, business gains; revenue down 1.3%

Sees 11% gain in IPTV subscribers and 7.2 percent rise in business revenues
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CenturyLink (NYSE: CTL) continued to weather its legacy-to-next generation migration pains, reporting on Wednesday that it had Q3 2012 operating revenues of $4.57 billion, down year-over-year from $4.60 billion in Q3 2011.

What drove the revenue decline was a drop in legacy services revenues due to the expected impact of traditional voice access line losses and lower access revenues.

These legacy losses were partially offset by $58 million in incremental revenue from the Savvis acquisition, which came from a growing demand from businesses for higher bandwidth data services and the growth in consumer broadband and Prism IPTV subscribers.

On a pro forma basis, operating revenues declined 1.3 percent from $4.63 billion in the same quarter a year ago to $4.57 billion this quarter, a factor that's also due to the decline in legacy revenues offsetting the increase in strategic next-gen service revenues.

Here's a breakdown of CenturyLink's key operating metrics:

  • Regional Markets: The telco reported that strategic revenues were $912 million, up 7.9 percent year-over-year from Q3 2011. Taking out the impact of private line services, the adjusted growth was more than nine percent. However, total revenues declined 2.1 percent over pro forma Q3 2011 to $2.47 billion, reflecting the ongoing decline in legacy services that were tempered by Access Recovery Charges implemented effective July 1, 2012 following CAF Order. Two of the key highlights of the Regional Markets growth were IPTV and broadband growth. During the quarter it added over 10,000 Prism IPTV subscribers and 44,000 new DSL customers, ending the quarter with over 104,000 and 5.8 million subscribers, respectively. Similar to other telcos like AT&T (NYSE: T) and TDS Telecom (NYSE: TDS), CenturyLink reported that over 90 percent of its IPTV customers bundled TV service with broadband. And while access line loss is a continual reality for every telco, CenturyLink reduced line loss by 22 percent over Q3 2011

  • Wholesale Markets: The ongoing TDM to IP transition also had an effect on CenturyLink's Wholesale Markets division as revenues declined year-over-year from Q3 2011 due to wireless carrier migration from private line to Ethernet services. Regardless of the losses, the telco said it is on track to complete 4,000 of the 4,500 Fiber to the Tower (FTTT) projects this year. In this quarter alone, it completed about 1,335 fiber builds and over 3,300 year-to-date, ending the quarter with about 13,500 fiber-connected towers. Strategic revenues also declined year-over-year to $568 million in the quarter, as Ethernet sales to wireless operators were offset by declines in copper-based revenue.

  • Enterprise Markets--Network: For the third straight quarter, Enterprise Markets achieved sequential revenue growth. Driven by strong MPLS and Ethernet sales, Enterprise Markets strategic revenues increased 7.2 percent to $341 million over Q3 2011. The Enterprise Markets generated $658 million in total revenues, up .6 percent from pro forma Q3 2011, a factor it said reflects "growth in high-bandwidth offerings and data integration revenues partially offset by declines in legacy services revenues."

  • Enterprise Markets--Data Hosting: The Enterprise Markets--Data Hosting segment, which primarily consists of its Savvis operations, reported growth in both managed hosting (including cloud) and colocation services revenue, particularly in the financial and media vertical market segments. The company reported that this segment's operating revenues were $280 million, up 8.1 percent from pro forma Q3 2011. Within this segment, colocation and managed services were the clear stars, rising 7.6 percent and 9.2 percent, to $113 million and $107 million, respectively. Other key highlights during the quarter was that it expanded its geographic reach, opening a new data center in Singapore and expanding a data center in the New York/New Jersey market. It also completed its acquisition of certain pieces of Ciber's IT Outsourcing business in October, a deal that expanded CenturyLink's application-management services and help-desk support capabilities. Finally, the service provider announced its savvisdirect unit to extend cloud services to any size business.  

CenturyLink forecast Q4 operating revenue to come in between $4.56 billion to $4.61 billion and full year 2012 revenue of $18.35 billion to $18.4 billion.

Looking toward 2013, the telco said it anticipates ongoing improvements in top line revenues and expect to reach top line revenue stabilization in 2014. However, the ongoing migration from legacy service to strategic revenue means that operating and free cash flows will be lower in 2013.

CenturyLink reached $37.88 at on the New York Stock Exchange in late day trading on Wednesday.

For more:
- see the release

Special report: Wireline telecom earnings in the third quarter

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