CenturyLink says it does not always compete head to head with Level 3—which it is in the process of acquiring—and that the two companies are providers in an ever-evolving business services market.
In a new FCC filing (PDF) responding to questions about the markets in which the two providers offer business services, CenturyLink said it and Level 3 offer similar services to small and large businesses, but not in every market.
“While CenturyLink and Level 3 offer overlapping services for SMBs and enterprises, they do not significantly compete with each other in the provision of these services,” CenturyLink said.
In the fourth quarter of 2016, CenturyLink said it had 28.5% of sales of SMB data 11 services in its ILEC territory, while Level 3 accounted for only 1.1 % of similar service sales.
Ethernet is another key factor. CenturyLink noted it had 6.5% of the total U.S. sales of business Ethernet services, and Level 3 accounted for 17.6% of such sales.
CenturyLink said it is seeing competition in the business data services (BDS) market from two main sources: cable and national providers.
Cable steps up
Cable operators like Charter and Comcast have aggressively expanded their fiber footprints to deliver Ethernet and optical services.
“In recent years, this market has seen dramatic change, becoming increasingly competitive for companies such as CenturyLink due in large part to the rapid expansion of cable companies into a broad range of business services,” CenturyLink said. “Indeed, the culmination of the cable companies’ decade-long extension of fiber deep into their networks and the maturation of their business services support systems now stands as the most significant competitive factor in the business data services market.”
Charter Business, which now goes under the Spectrum Enterprise brand, reported fourth quarter commercial revenue grew 11.8% to $1.42 billion. Within the business segment, small and medium business revenue was $891 million, up 13%, while enterprise grew 9.8% to $526 million.
By making these two purchases, Charter advanced to the number one position on Vertical Systems Group’s cable Ethernet leaderboard by purchasing Time Warner Cable and Bright House Communications, for example.
Rick Malone, principal of Vertical Systems Group, noted in a release that the cable “segment realigned in 2016 with Spectrum Enterprise rising to the top as a result of Charter’s acquisitions of Time Warner Cable and Bright House."
No less compelling is Comcast, which has expanded its fiber network footprint into more markets. The service provider has made network expansions into new areas like Eastern Kansas City, Missouri and Montgomery County, Maryland. During the fourth quarter, Comcast won a fast food restaurant chain customer with about 6,000 locations as well as provided Wi-Fi and internet services to a small retailer with about 13,000 locations.
AT&T, Verizon remain viable threats
Large competitive providers like Zayo as well as national incumbents like AT&T and Verizon continue to be a big threat to CenturyLink.
“Competition for business customers also has increased due to the expansion of large national providers, such as AT&T and Verizon and competitive local exchange carriers (CLECs), such as Zayo,” CenturyLink said. “Within this evolving market, CenturyLink and Level 3 are just two of a large group of competitors.”
Zayo has continued to expand its fiber footprint organically and through targeted acquisitions, including its most recent purchase of Electric Lightwave (ELI). By purchasing ELI, Zayo immediately enhanced its West Coast fiber footprint.
“Zayo’s added capacity over the last decade has resulted in an extensive fiber footprint throughout CenturyLink’s ILEC territory,” CenturyLink said.
Meanwhile, Verizon recently wrapped its acquisition of XO, an addition that immediately enhanced the telco’s metro and long-haul fiber capabilities to deliver Ethernet and serve as a platform to backhaul 4G and emerging 5G wireless traffic.
“Verizon’s acquisition of XO increased Verizon’s already substantial fiber capacity and facilities in CenturyLink’s territory, creating an even stronger competitor to CenturyLink,” CenturyLink said.
Despite CenturyLink and Level 3’s competition claims, a number of industry groups like Incompas said that the combined CenturyLink/Level 3 will stifle competition. The industry group, an advocate for CLECs, said it is concerned that CenturyLink won’t expand its fiber footprint beyond its current network boundaries.