CenturyLink must expand fiber to ward off Google Fiber, cable competitors, says Wells Fargo

CenturyLink (NYSE: CTL) will need to continue to expanding its fiber networks to serve a mix of residential and business customers as it faces growing threats from upstart providers like Google Fiber (NASDAQ: GOOG) and cable operators like Comcast (NASDAQ: CMCSA) and Charter Communications (NASDAQ: CHTR) building out into new areas.

Jennifer Fritzsche, senior analyst for telecommunications services at Wells Fargo, said in a research note that CenturyLink will face two scenarios: proactively build out fiber or work to satisfy the growing needs of its special access competitor customers.

"With the changing competitive landscape, CTL is somewhat caught between a rock and a hard place," said. "It either needs to act ahead of this competition with its own fiber push, or be forced to enable it in some ways if special access economics do change and it decides that its copper network is good enough in the areas where it does not yet have fiber."

Fritzsche added that "We would expect CTL to take the offensive here and be proactive in pushing out fiber deeper into its network in an attempt to offer its customers faster speeds."

While CenturyLink won't announce its earnings until Wednesday, the service provider has clearly made expanding its fiber network a priority.

As of the beginning of the year, CenturyLink passed over 940,000 homes with its GPON network and 490,000 businesses, while providing over 30 percent of its market area with speeds of 40 Mbps or higher.

The service provider continues to bring the GPON-based service into new cities. In February, CenturyLink announced that it is offering service to a number of new multi-tenant unit (MTU) buildings in parts of Houston, for example.

Glen Post, CEO of CenturyLink, said during the company's fourth quarter earnings call that it plans to expand its GPON-based fiber service into more businesses and residential homes throughout the year.

"While we are focused on specific actions to drive sales revenue growth of our strategic product and service in 2016 and beyond, we expect to drive further penetration of our consumer business and GPON footprint of over 900,000 households and almost 500,000 businesses, and have 3 million households enabled for Prism TV service," Post said.

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