CenturyLink plans to extend IPTV into new markets in 2015

CenturyLink (NYSE: CTL) has reiterated its plans to bring its growing Prism IPTV service into new markets next year as it continues to work with various communities to establish new franchise agreements.

Glen Post CEO CenturyLink

Post

Glen Post, president and CEO of CenturyLink, told investors during the third-quarter call that while they have made considerable progress in passing over 240,000 homes with Prism TV, he could not identify where company executives are planning to bring the service next.

"We also plan to continue to invest our Prism TV capabilities and we've added more than 240,000 addressable homes year-to-date, on track to reach a total of 300,000 new Prism TV addressable homes for the full year of 2014," Post said during the earnings call, according to a Seeking Alpha transcript. "We do anticipate expanding Prism TV service to additional households and markets during 2015, however we're not ready to announce specific markets at this time."

Nevertheless, CenturyLink's IPTV bet continued to bear fruit in the third quarter as the service provider added about 14,000 Prism customers, increasing penetration of over 2.2 million addressable homes to 10.3 percent.

Here's a breakdown of their key segment results:

Consumer: Driven by an uptick in broadband Internet and Prism IPTV customers, consumer segment strategic revenues rose 6.4 percent year-over-year to $712 million. In tandem with Prism IPTV growth, the service provider added nearly 8,400 high-speed Internet customers in the third quarter of 2014, ending the quarter with about 6.06 million customers in service.

Stuart Ewing, CFO and executive vice president of CenturyLink, said during the earnings call that the growth of the consumer business was the result of "growth in high-speed Internet and Prism TV customers, price increases and improved churn."

However, overall consumer revenues declined 0.8 percent year-over-year due to the continued decline in legacy services offsetting growth in strategic services.

"Legacy revenues for the segment declined 6.6 percent from third quarter 2013 as access line and long distance revenue declines were partially offset by select price increases," Ewing said.

Business: Ongoing demand for high-bandwidth data services such as MPLS, Ethernet and wavelength services drove up strategic revenues in the business segment 6.1 percent to $677 million during the quarter. The segment generated $1.57 billion in total revenues, up 1.6 percent year-over-year from the third quarter of 2013, as growth in high-bandwidth offerings and data integration revenues offset lower legacy services revenues. Likewise, CenturyLink said that data integration revenues were $22 million higher in the third quarter of 2014 compared to the third quarter of 2013.

In particular, CenturyLink said it saw strong sales momentum during the quarter, with sales funnel entering the fourth quarter with continued success with its new Managed Office and Managed Enterprise solutions.

Post said the overall goal for the company's business division is to become an integrated provider of IP-based network and cloud services.

"We believe these priorities are key to successfully navigating the continued transformation of our company in driving long-term profitable growth and value to our shareholders," he said during the earnings call. "The first of these is to grow business network solutions. We expect to continue to focus on driving growth from high bandwidth data services, including MPLS, Ethernet, Wavelength, business depot, and voice-over-IP services, by providing reliable connectivity to meet the growing bandwidth needs of our business customers."

Part of that vision included collapsing all of the  disparate core networks it acquired in recent years from Embarq, Qwest and Savvis by completing the deployment of Alcatel-Lucent's (NYSE: ALU) 7950 XRS core router into its network. The service provider also filed a petition with the FCC to discontinue its legacy ATM and Frame Relay services since its key vendors no longer support the gear that supports that service.

Wholesale: In the wholesale segment, the story continues to be about the battle of growing Ethernet-based services amidst declines in legacy TDM services, particularly to wireless operators. Wholesale segment strategic revenues were $560 million, down slightly from the third quarter of 2013 as increases in wireless carrier bandwidth demand and Ethernet sales were offset by declines in low-speed data revenues.

During the quarter, CenturyLink completed 1,200 fiber builds to wireless towers and it remains on track to complete about 2,500 for the full-year 2014.

"We continued to see good growth in Ethernet services from our fiber-to-the-tower investments in our wholesale business as we meet the growing data transport needs of our wireless carriers," Post said. "However, as we mentioned last quarter, wholesale operating revenue continues to be pressured by the migration from low speed data services to fiber-based Ethernet as well as continued network grooming by wireless carriers."

Overall revenues were $843 million, down 4 percent from the third quarter of 2013, reflecting what the service provider said was the continued decline in low-speed data revenues and in legacy revenues, primarily driven by lower long distance and switched access minutes of use, along with access rate reductions from implementation of the CAF Order.

Hosting: CenturyLink's hosting segment continued to see growth in managed hosting and colocation revenues due to cross-selling initiatives and product enhancements continue to strengthen sales opportunities. Managed hosting revenues were $147 million, up 14 percent from the third quarter of 2013, while colocation revenues were $163 million, a 4.5 percent increase over the same period a year ago.

During the quarter, CenturyLink introduced a new private cloud service on its established public cloud service platform, enabling new hybrid cloud capabilities for business customers.

Ewing said that "we expect long-term improvement in both revenue and margin trends across the hosting segment and we continue to leverage these assets to drive additional revenue through cross selling opportunities in our other segments."

From an overall revenue standpoint, CenturyLink's core revenues were $4.08 billion, down 0.6 percent year-over-year. Despite the slight decline, revenue from high-bandwidth services rose about 17 percent year-over-year across business and wholesale customers.

Operating revenues were $4.51 billion compared to $4.52 billion in third quarter 2013 as the decline in legacy revenues, driven primarily by access line losses and lower access revenues, was offset by increased strategic and data integration revenues.

Looking toward the fourth quarter, CenturyLink said it expects revenues decline sequentially due to anticipated lower data integration revenues. The service provider has forecast operating revenue of between $4.4 billion to $4.5 billion and core revenues of $4.05 billion and $4.10 billion.

"We expect total revenue results for 2014 to be approximately $40 million to $80 million above the midpoint of our original 2014 guided range, which was $18 billion, primarily driven by higher than anticipated non-recurring CPE sales," Ewing said. "As we look forward to 2015, we continue to expect operating revenues to be approximately the same as these projected 2014 revenues." 

Shares of CenturyLink were listed at $39.76, down $1.89 or 4.54 percent, in Thursday morning trading on the New York Stock Exchange.

For more:
- see the earnings release
- and the earnings transcript (sub. req.)

Special report: Wireline telecom earnings in the third quarter of 2014

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