Analysts at MoffettNathanson say a prolonged recession, which might happen as a result of the COVID-19 crisis, would hurt CenturyLink in three ways.
If consumers must pinch pennies, the last holdouts still using legacy landlines might cut those services and go wireless-only. And from an enterprise perspective, businesses may also cut landlines in favor of more modern voice technologies.
“Business voice losses – legacy and VoIP – will likely face incremental pressure, as the pandemic has highlighted the value of more flexible, feature-rich offerings, like UCaaS, and introduced legions of businesses to videoconferencing,” write the analysts.
CenturyLink is already seeing some of this. According to its most recent quarterly earnings report. The company’s small- and medium-business (SMB) revenue decreased 6% year-over-year, primarily driven by continued declines in legacy voice services. And CenturyLink executives voiced concern about how SMBs will emerge, or go bankrupt, from largely being closed during the pandemic.
MoffettNathanson’s second concern about the company is that a recession could accelerate the uptake of SD-WAN as businesses might look to the technology as a way to ditch expensive MPLS connections.
“The current environment has highlighted the value of SD-WAN’s flexibility,” write the Moffett analysts, who say that MPLS represents a mid-teens share of CenturyLink’s revenue.
There’s always been a tension between MPLS and SD-WAN at service providers who provide both technologies to enterprise customers. MLPS has much higher margins, but customers demand SD-WAN. CenturyLink's SD-WAN services were available across 100 countries as of the end of 2019. CenturyLink uses SD-WAN solutions from Cisco/Viptela, Versa Networks and Cisco Meraki.
The Moffett analysts say a third threat to CenturyLink during a longer recession is that cable might take share from the company.
“Cable has taken significant share from incumbent telcos, within the SMB segment,” writes Moffett. “The superiority of cable’s broadband offering vs. legacy telco broadband has been the key driver. SMBs that make it through this recession are likely to take a hard look at their broadband and voice services.”