CenturyLink bleeds 65K broadband customers in Q2, but says triple play focus will drive growth

Lobby of the Technology Center of Excellence (Source: CenturyLink)

CenturyLink continues to suffer broadband subscriber doldrums: the service provider dropped 65,000 subscribers during the quarter as it focused its efforts on attracting higher-paying triple play customers.

Because of the losses, the service provider reported that its overall broadband customer base declined to 5.9 million subscribers as of the end of the second quarter.

Glen Post, CEO of CenturyLink, told investors during the second quarter earnings call that while the broadband subscriber growth came in below its expectations, the operator's move to focus on customers who take multiple services will pay off in later quarters.

“On the consumer side, we continue to pivot towards the sale of higher speed, higher value bundle offerings to attract higher quality customers,” Post said. “These customers have higher ARPU, lower churn, and a much higher value life cycle than lower speed, lower credit standalone broadband customers.”

Post added that similar to the credit policy changes it made last year, the new approach impacted near-term broadband growth.

A large part of the churn, or 20 percent, which took place in the second quarter was due to lower speed, non-paying customers. Within that customer segment, a large portion of them were standalone broadband customers that Post says are “less loyal.”

“We believe this is the right approach for the long-term health of our business even though it did have impact on broadband units some of which we saw in the second quarter,” Post said. “We did expect broadband additions to be affected by the pivot away from standalone broadband customers, but the impact was greater than we anticipated.”

Despite the decline, CenturyLink continued to make progress with its higher speed offerings, particularly 40 Mbps. Over 8.4 million addressable households and businesses were able to get access 40 Mbps or higher speeds, including 1.2 million GPON-enabled addressable units.

“There are underlying indicators of strength in the market as we’re seeing an increase of net adds at 40 Mbps and higher speeds, which we expect will deliver future benefits, lower churn and higher ARPU,” Post said. “We expect unit trends to improve in the second half of the year as the effects of the changes in our go-to-market, customer retention programs begin to take effect.”

On the FTTH front, CenturyLink expects to reach 11 million premises at 40 Mbps or higher, including 2 million GPON-enabled addressable households and businesses by year-end 2017.

But the telco is not going to rest on its broadband laurels. The service provider has set an aggressive three-year plan to enhance its fiber and copper-based broadband subscriber base.

By the end of 2018, CenturyLink expects to have 10.5 million, or over 85 percent of addressable broadband-enabled units at 40 Mbps or higher speeds in its top 25 markets. Within that time frame, the telco said it will have 7 million, or over 55 percent of addressable broadband-enabled units at 100 Mbps or higher.

Looking toward 2019, CenturyLink forecasts that 11 million of its addressable broadband-enabled units will be able to access 100 Mbps or higher speeds. Additionally, it expects 3 million addressable broadband-enabled premises will be equipped with 1 Gbps or higher speeds over its FTTH network.

“While the details may vary, the point is we think we can deploy competitive speeds within our existing capital plans,” Post said.

Here’s a breakdown of CenturyLink’s key segments:

Business: Business revenues were $2.6 billion, down 2.3 percent from the second quarter 2015 due to a decline in legacy revenues, which was partially offset by 8 percent growth in high-bandwidth data revenues.

Driven by sales of Ethernet and MPLS, strategic revenues were $1.23 billion in the quarter, up 5 percent year-over-year from the second quarter of 2015, primarily due to the increased high-bandwidth data revenues being partially offset by lower hosting revenues.

Consumer: The consumer segment was again a story of TDM-to-IP migration as revenues declined 0.6 percent to $1.49 billion. CenturyLink said the decline was due to a drop in legacy voice revenues, which was partially offset by growth in broadband and Prism TV revenues. Strategic revenues were $800 million in the quarter, a 5.5 percent increase over second quarter 2015.

Total operating revenues for the quarter were $4.4 billion, down year-over-year from $4.42 billion in second quarter 2015.

The telco noted that the decline was related to losses in legacy and data integration revenues were partially offset by higher strategic revenues, and increased high-cost support revenues related to Connect America Fund Phase 2 activity in second quarter 2016.

Looking toward the third quarter, CenturyLink said that it expects an increase in data integration revenues and continued growth in strategic revenues to be offset by an anticipated decline in legacy revenues, resulting in lower operating revenues compared to second quarter 2016.

Specifically, it has forecast operating revenues to come in a range between $4.35 and $4.4 billion.

Shares of CenturyLink closed at $30.51, down 8 cents or 0.26 percent, in Wednesday afternoon trading on the New York Stock Exchange.

For more:
- see the earnings release (PDF)
- listen to the earnings webcast (reg. req.)

Special report: Tracking wireline telecom earnings in Q2 2016

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