When CenturyLink (NYSE: CTL) completed its acquisition of Qwest last Friday--a feat that didn't come as much of a surprise after it completed all of its necessary state and federal approvals--the service provider instantly became the third largest U.S. telco.
Unlike its two new large incumbent counterparts AT& T (NYSE: T) and Verizon (NYSE: VZ), CenturyLink does not have a wireless business outside of its reseller arrangement with Verizon to fall back on as another revenue source.
Being a wireline-centric service provider, CenturyLink, much like its independent ILEC friends Frontier (NYSE: FTR) and Windstream (Nasdaq: WIN) can no longer think like a traditional regulated voice service provider; it needs to think like a broadband and IP provider.
To get there, CenturyLink has adopted a diet that consists of what I call the three "B" service groups--broadband, business and wireless backhaul:
- Business Services: Now that it has Qwest in its fold, CenturyLink not only expanded its access line count and gained a nationwide fiber network, but it also becomes one of the largest business providers. Through Qwest it will instantly gain a number of large-scale enterprise and also a number of high-profile civilian and defense government agency customers via the GSA Networx contracts. CenturyLink had a number of large business customers dating back to its days as CenturyTel, but a number of other opportunities had been out their reach. Stuart Ewing, CenturyLink's CFO, said during the Morgan Stanley Technology, Media and Telecom Conference that an initial agreement signed prior to the closing of the deal, they could sell services off Qwest's network already enabled them to "pick up some MPLS customers (financial companies) that we weren't able to pick up in the past because we weren't able to serve them." In 2011, the new CenturyLink will focus on pursuing existing multisite business accounts and others in and outside of its legacy footprint with an even larger portfolio of business services that not only include traditional data, but also emerging cloud and colocation services.
- Broadband Expansion: Both CenturyLink and Qwest had been separately upgrading and expanding their broadband capabilities in recent years with higher speed service tiers. Like AT&T, CenturyLink (and its predecessors CenturyTel and Embarq) have advocated a hybrid copper/fiber Fiber to the Node (FTTN)-like architecture delivering a mix of ADSL2+ and VDSL2 to deliver higher speeds, including 20 and even 40 Mbps. At the end of Q4 2010, CenturyLink had added 29,000 new DSL subscribers and Qwest added 92,000 new FTTN subscribers. The new company will continue to leverage its triple play bundle strategy that will include voice, video (both satellite and IPTV) and data to keep customers from defecting to cable. Not surprisingly, Ewing said that those customers that subscriber to a triple play bundle have historically been three times less likely to churn than a voice-only customer."
- Wireless Backhaul: While neither service provider has a wireless business outside of their respective reseller arrangements with Verizon Wireless, CenturyLink and Qwest have been aggressively pursuing wireless backhaul opportunities as large wireless operators (AT&T, T-Mobile and Verizon Wireless) and even Tier 2 wireless operators (MetroPCS and US Cellular) make their respective LTE migrations. Already serving a number of wireless operators with fiber to the cell site services, CenturyLink at the end of Q4 revealed it would allocate $1 billion of capital to fund new wireless backhaul and other projects. Complementing Qwest's 4,000 site fiber to the cellsite footprint, CenturyLink plans to add 3,000 fiber cell towers to its fold.
CenturyLink may have a balanced three-B diet, but now the hard part is executing on that strategy that provides a consistent customer experience as they integrate not only the network infrastructure, but also the culture of the companies.--Sean