CenturyLink and Level 3 are confident that when they complete their multibillion-dollar merger later this year, the combined fiber network will enable the new company to more effectively compete against cable in the small to medium-sized business (SMB) market segment.
Being able to offer higher speeds and other services like cloud over its existing HFC and fiber networks has allowed cable to effectively chip away at the SMB customers that only CenturyLink and other incumbents once served.
Stewart Ewing, CFO of CenturyLink, told investors during the J.P. Morgan 45th Annual Technology, Media and Telecom Conference that the service provider is looking to regain a greater footing with SMBs, particularly in the former Qwest territories.
“In the areas where we are the local exchange carrier, there’s a tremendous opportunity to take some market share away from the cable companies, especially small to mid-sized customers where Qwest had lost quite a bit of market share,” Ewing said. “We think there’s a good opportunity there and we need to act more as an insurgent than as an incumbent telco.”
Enhancing on-net fiber density
A key element of the marriage is the new provider will have an even greater local on-net fiber footprint over which it can deliver a larger host of cloud and Ethernet services.
Upon completing the deal, CenturyLink said the acquisition of Level 3 will increase its reach by nearly 75% to approximately 75,000, including 10,000 buildings in EMEA and Latin America.
Sunit Patel, CFO of Level 3, said that the new on-net fiber footprint will give the new company an advantage of cable competitors.
“When you look at our on-net fiber building footprint as a combined company it’s quite substantial,” Patel said. “There’s absolutely no reason why we should not be able to compete against the cable companies in those buildings.”
Patel added that CenturyLink has potential to advance its market share with a larger set of services in these buildings with a larger fiber network.
“When you look at the market share penetration in those buildings, it is reasonably low so there are opportunities for market share gains there,” Patel said. “The proximity of our network to a lot of buildings is better as a combined company so if you leverage that we’ll be able to compete quite effectively against cable companies.”
Since the new company will have more buildings closer to fiber and already connected to fiber, CenturyLink will gain new capital efficiencies.
When CenturyLink announced its acquisition of Level 3 last October, the telco said it expects to achieve $975 million in annual run-rate cash synergies that will enhance its ability to invest in advanced networks.
Patel said that having a larger set of fiber assets means the company would not have to spend more money than it would as separate companies to address customer needs.
“Our average distance to get to any building that we need to build to gets shorter as a combined company,” Patel said. “It means that for every dollar we spend on new builds, we would be getting more buildings connected than we were as a standalone company.”
Patel added that “we don’t expect capital intensity to change, but we expect to get better returns with the same amount of capital.”