CenturyLink consumer revenue up in Q1, predicts low broadband growth in Q2

CenturyLink (NYSE: CTL) saw an uptick in broadband and Prism IPTV subscribers that drove up its Q1 2013 strategic consumer revenues 5.4 percent year-over-year to $620 million, but the carrier's overall consumer revenues declined, and it forecast "significantly lower" broadband growth in the next quarter.

Despite the strong gains it saw in broadband and video, total consumer revenue declined 3.4 percent year-over-year to $1.51 billion, a factor it relates to the ongoing the continued decline in legacy local and long-distance voice services.

The telco saw continued gains in selling strategic data services such as MPLS and Ethernet services to its enterprise and government customers.

"CenturyLink reported strong financial results and achieved solid broadband and Prism TV customer growth in the first quarter, while continuing to see good demand from businesses for high-bandwidth network and data hosting services," said Glen Post, president and CEO of CenturyLink, in the earnings release.

Here's a breakdown of the telco's key metrics:

Consumer: Broadband and video were the clear stars in CenturyLink's Q1 consumer results. During the quarter, CenturyLink added 66,700 new broadband subscribers, ending the quarter with over 5.9 million broadband customers. In tandem with the growth of its subscriber base, the telco also upped the speeds of its broadband offerings. The telco's broadband speed availability is broken out into four brackets: over 70 percent of the phone lines that it has enabled with broadband can get 6 Mbps or higher; 60 percent of enabled lines can get 10 Mbps or higher; 30-32 percent of lines can get speeds of 20 Mbps or higher; and about 15 percent can get 40 Mbps or higher.

Although it saw strong broadband subscriber gains in Q1, Post said that they "do expect broadband subscriber growth to be significantly lower in the second quarter due to normal seasonality in our industry."

Coupled with broadband, CenturyLink reported that it saw steady gains in IPTV, adding 13,400 Prism TV subscribers in the first quarter for a total of 120,000 subscribers. Following the debut of Prism in Phoenix, which is its first legacy Qwest market to get the service, the telco began a soft launch of the service in Colorado Springs. In Q2, the service provider plans to begin a soft launch over the fiber to the premises (FTTP) network it plans to build in Omaha.

"We now have a penetration of nearly 10 percent across the market where service is available," Post said. "Over 50 percent of the customers added were new customers to CenturyLink."

Business: Driven by strong sales of MPLS and Ethernet services to enterprise and government customers, strategic business revenues were $615 million, up 6.4 percent year-over-year. Ethernet, DSL, and optical wavelength services grew 15 percent year-over-year. Overall business revenues remained flat at $1.5 billion as Ethernet and MPLS growth was offset by lower legacy services and data integration revenues.

Complementing its growing fiber-based Ethernet footprint, CenturyLink continued to expand its Ethernet over Copper (EoC) footprint to over 3,300 COs (central offices).

Post said that they "expect to continue making investments in our network to enhance speed capabilities require to deliver competitive broadband products and services across our markets."

Wholesale: Strategic wholesale revenues slid 1.5 percent year-over-year to $573 million as declines in copper-based revenue were partially offset by increases in wireless carrier bandwidth demand and Ethernet sales. Total wholesale revenues declined 5.7 percent year-over-year to $907 million, a factor it attributes to the ongoing decline in legacy revenues and the implementation of access rate reductions that went into effect on July 1, 2012, in accordance with the CAF Order and lower long distance and switched access minutes of use.

A key focus in CenturyLink's wholesale segment is building out fiber to more wireless towers in its footprint. During the quarter it completed over 800 fiber builds, ending the quarter with 15,500 towers connected to its network.

"We currently expect to complete a total of 4,000 to 5,000 builds by end of 2013," Post said. "We believe our fiber-to-the-tower program have solidified our wholesale access revenue for the long term and assist in the stabilization of our revenue trends."

As seen with other traditional ILECs that sell FTTT services, CenturyLink is seeing revenue compression as more of its wireless wholesale customer's transition from copper-based DS1 circuits to fiber-based Ethernet. Despite the near-term declines, Post said that the telco anticipates "that wireless bandwidth growth will result in expansion of Ethernet consumption reversing the current revenue compression by early 2014."

Data hosting: Driven by growth in core managed hosting products and in the financial and consumer brands verticals, data hosting revenues grew 4.3 percent year-over-year to $334 million. Inside the data hosting segment, colocation and managed hosting revenues rose 4.3 and 20 percent to $144 and $125 million, respectively. The managed hosting results include $15 million of revenues from the Ciber global IT outsourcing assets it acquired in October 2012.

"We continue to build upon solid momentum in the fourth quarter 2012 as new sales were also strong again this quarter," Post said. "Cross-sell opportunities for hosting product across the company continue to be strong. The sales of hosting services to business network customers steadily are growing."

Although large enterprises and government is a big focus for the data hosting division, the launch of savvisdirect last December means that CenturyLink will be able to extend cloud services to any size business.

"With our savvisdirect, we've updated our bundled solutions to introduce cloud product to additional business customers throughout all of our sales channels," Post said. "We also continue to invest to increase data center capacity as well as expand our product portfolio to meet customer needs and expand our market opportunity."

During the quarter, Savvis expanded capacity in three data centers adding 15,000 square feet of saleable floor space. In 2013, Savvis expects to add to a total of nearly 90,000 saleable square feet.

Shares of CenturyLink were listed at $38.27, up 97 cents, or 2.6 percent, in Thursday morning trading on the New York Stock Exchange.

For more:
- see the earnings release
- and the call transcript

Earnings roundup: Wireline telecom earnings in the first quarter of 2013

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