CenturyLink, Qwest: A new service provider era?

CenturyLink's bid to acquire Qwest reminds me of the song 'Closing Time' by Semisonic where the singer croons: 'every new beginning comes from some other beginning's end.'

When CenturyLink does wrap the deal next year, it heralds the beginning of a new competitor to AT&T and Verizon, while Qwest closes its long and storied chapter in the U.S. service provider market. While CenturyLink's move to snap up Qwest comes as it is still digesting Embarq, the deal as many analysts and telecom onlookers see it was not a complete surprise. Glen F. Post III, CenturyLink's chief executive officer and president, said last year that they would look for other opportunities once they made significant progress in integrating Embarq into its fold. 

Of course, Qwest and CenturyLink come from two different, yet similar, backgrounds. A combination of the former US West and upstart long-haul optical provider Qwest, CenturyLink's acquisition of the company is the end of a decades-long journey that's had its share of soap opera drama. During the US West days, many consumer and local businesses referred to the telephone company as US Worst for its poor service and customer response times. At the same time, US West, like its Bell brother BellSouth, was a technology innovator.

As one of the first RBOCs to upgrade their PSTN network to digital switching, the former US West came out with caller ID, and later ISDN and DSL services before its RBOC brothers. Another key area of innovation for Qwest was video. Not only did it buy the former Continental Cablevision, but it also had a video over proprietary VDSL service. Ultimately, Qwest sold off its cable holdings and just this past year shut down its VDSL-based video service in favor of online video and satellite. 

After leaving the former AT&T in the late 1990s, Joseph Nacchio helped bring Qwest--a pioneering long-haul optical provider--to prominence in 2000 when the long-haul optical company successfully bought out the former US West for an astronomical $55 billion. However, the good times ended when the former Qwest struggled with a heavy debt load and a scandal emerged that Nacchio and other top Qwest made millions from selling off stock despite sagging revenues. After the scandal, Qwest went into head-down mode under both former Ameritech leader Richard Notebaert and more recently Ed Mueller, who spent much of their respective tenures cleaning up the carrier's balance sheet, cutting costs and pursuing new wholesale wireline pursuits such as fiber-based wireless backhaul.    

Meanwhile CenturyTel was nothing more than a small rural telephone company for much of 20th and 21st century. That began to change in the late 1990s when the now 34-plus year veteran Glen Post took the CEO reins when he quietly acquired other smaller independent telcos. But what got the industry's attention in 2008 was its move to acquire fellow independent telco EMBARQ.

When it completes its acquisition of Qwest, CenturyLink becomes an RBOC with an expanded local footprint that's also similarly rural in nature, but a nationwide long-haul network that serves many large enterprise and government customers. CenturyLink does face many challenges. Along with wrapping up the integration process of EMBARQ--something CenturyLink claims is on track--the service provider will have to convince existing and new enterprise customers that the traditional small town provider can service them. What's more, unlike AT&T and Verizon, CenturyLink does not have a wireless business--something that Post said in the conference call announcing the deal could change.   

And while it's true Qwest's story ends and CenturyLink's super carrier story begins, the hope and fear that many existing Qwest customers already are expressing is how Mr. Post's ability to maintain the same level of customer service and experience. Maintaining customer happiness and trust may be CenturyLink's biggest challenge in making this deal a success.-Sean