CenturyLink continues to be challenged by cable’s aggressive DOCSIS 3.1 rollouts, particularly where it offers lower-speed broadband tiers, as the telco lost another 101,000 customers during the third quarter. The service provider ended the quarter with a total of 5.76 million customers.
Glen Post, CEO of CenturyLink, told investors during its third-quarter earnings call that most of the churn for the period came in markets were customers could only get 20 Mbps and lower speed tiers.
“We saw a much higher than expected loss of customers at the 20 megabits and below speeds in a lot of the markets where we have that,” Post said during the earnings call, according to a Seeking Alpha earnings transcript. “We had a much higher loss there. I think a couple of reasons, first of all, you see cable rolling out more with more aggressive offers, higher speeds and just the demand for bandwidth in those markets.”
Deutsche Bank noted in a research note that CenturyLink's broadband losses were "2x worse than our -52k estimate."
It’s hard not to notice the effect cable operators are having on the broadband landscape with their DOCSIS 3.1 builds. While there’s been a lot of attention on Comcast’s push into more markets for business and consumers, regional cable operators like WOW! and Mediacom are also making notable strides to extend their DOCSIS 3.1 networks to deliver 1 Gbps services over HFC in various markets.
WOW!, which started rolling out 1-gig services a year ago, said it will have 95% of its footprint enabled with DOCSIS 3.1 by February. Meanwhile, Mediacom recently completed its goal to build out DOCSIS 3.1 network services across its 22-state footprint. These providers will certainly drive CenturyLink to up its speed game.
Despite seeing another quarter of broadband churn, CenturyLink remains confident that its plans to attract more customers that purchase higher speeds and offering its Price for Life program will pay off.
“Where we have Price for Life, churn has come down significantly,” Post said. “We're seeing good penetration and good take rates especially where we got the higher speeds with Price for Life.”
Broadband investment continuing
CenturyLink plans to continue in the last-mile copper and fiber networks to bring higher speeds to more of its customers to bring higher speeds across its footprint.
In the near-term, the service provider said it is going to try to address customers with lower speeds with a host of new offerings, but did not provide any specific details yet.
“We'll continue to invest in the higher speeds we've talked about previously and we'll provide a higher-value offer in the fourth quarter for customers in the lower speed markets,” Post said. “We're not going to go with the promotions we've had in the past. But we'll try to have a value offer for them where we have the lower speeds.”
From a broader build-out perspective, CenturyLink says it is on track to enhance various speed profiles by the year 2020. It says it will provide 90% of homes passed with 40 Mbps, 70% of homes and businesses passed with 100 Mbps and over 20% with 1 Gbps or higher.
“We'll keep working to enhance those speeds,” Post said. “We think the more we can get of share, especially with fiber, we'll do more of that when we can.”
Post added that the service provider saw growth in all speed tiers above 20 Mbps and lower.
“We saw growth in units in all of the other speed bands above 20 Mbps,” Post said. “So, it is speed that's making a big difference and we'll continue to focus on that build-out.”
Consumer, enterprise challenges continue
Overall, CenturyLink’s results were mixed as consumer and enterprise segment revenues both declined. However, Level 3, which formally became part of CenturyLink last week, saw an uptick in revenue due to gains in its Core Network Services (CNS) segment.
Here’s a breakdown of CenturyLink’s key metrics:
- Enterprise segment: Revenues were $2.17 billion, a decrease of 11.2% from third quarter 2016, primarily due to the revenue reduction associated with the Colocation Sale, as well as the decline in legacy and data integration revenues. Excluding the impacts of the Colocation Sale and contracted price reductions for a wholesale customer in the second quarter of 2017, Enterprise strategic revenues grew 4.2% and high-bandwidth data services revenues increased 5.5% year over year.
- Consumer segment revenues: Consumer segment revenues were $1.39 billion, down 5.8% year over year, which the provider said was due to a decline in legacy voice revenues, as well as lower video revenues due to the restructuring of a satellite video contract in the first quarter of 2017. Broadband revenue was flat year over year primarily driven by higher average revenue per unit (ARPU), offsetting the 101,000-broadband subscriber decline primarily due to a significant decrease in lower speed sales.
- Operating revenues: CenturyLink reported third-quarter revenues were $4.03 billion, down from $4.38 billion in third quarter 2016. Core revenues for the third quarter 2017 were $3.6 billion compared to $3.92 billion in third quarter 2016 due to the decline in legacy revenues, as well as the approximate $150 million revenue reduction due to the May 1, 2017 sale of the data centers and colocation business.
Level 3 reported that total revenue was $2.06 billion, compared to $2.03 billion for the third quarter 2016. Total Core Network Services (CNS) revenue was $1.96 billion in third quarter 2017, rising 1.8% year over year on a reported basis, and 1.5% year over year on a constant currency basis. For the third quarter of 2017, total Enterprise CNS revenue, excluding U.K. Government revenue, was $1.45 billion, which grew 3.4% year over year on a reported basis and 3.3% year over year on a constant currency basis.