CenturyLink ramps up TV footprint with 16,000 Prism subs but forecasts lower Q3 revenues

CenturyLink (NYSE: CTL) saw an uptick in Prism IPTV subscribers that drove up its second-quarter 2014 strategic consumer revenues to $1.5 billion, up sequentially over the first quarter.

During the quarter, it added nearly 16,000 Prism TV customers, increasing penetration of the more than 2.1 million addressable homes to approximately 10 percent. However, it lost 2,100 broadband customers, ending the quarter with a total of more than 6 million high-speed Internet customers due to typical seasonality.

This trend reflects what it says was strong growth in strategic services that partially offset by the continued decline in legacy POTS and data services.

The telco also saw continued gains in selling strategic data services such as MPLS and Ethernet services to its enterprise and government customers.

"CenturyLink second quarter results reflect strong demand for our high-bandwidth data services and cloud and hosting solutions, solid consumer demand for Prism TV service and our continued mitigation of legacy revenue declines," said Glen F. Post III, CEO and president of CenturyLink, in the earnings release.

Here's a breakdown of CenturyLink's key metrics:

Consumer: Driven by growth in broadband data and Prism TV, consumer revenues were $1.5 billion, up slightly up year-over-year. CenturyLink attributes overall consumer revenue growth to strategic revenues, which rose 8.6 percent year-over-year to $709 million.

"Consumer revenue grew year-over-year, fueled by continued strength in high-speed Internet and Prism TV customer growth, price increases and improved churn," said Post during the earnings call, according to a Seeking Alpha transcript.

Looking forward, Post said that the company will expand the Prism service into markets and homes throughout the rest of the year.

"We also expect to continue to invest in our Prism TV capabilities, we plan to add approximately 300,000 Prism TV addressable homes in 2014," Post said. "We continue to monitor the success of Prism TV in our current markets and will consider further expansion in the months ahead."

Business: Due to ongoing sales of high-bandwidth data services, the business segment generated $1.56 billion in total revenues, up 2.6 percent year-over-year as growth in high-bandwidth offerings and data integration revenues offset lower legacy services revenues. Strategic business revenues rose 7.8 percent to $663 million due to sales of high-bandwidth offerings such as MPLS and Ethernet services.

In addition, the service provider said it had a solid sales funnel entering the third quarter and continued success in sales of its Managed Office and Managed Enterprise solutions.

"Business at core revenue grew sequentially and year-over-year, driven by business demand for high bandwidth data services and our bundled service offerings, combining network, CPE, software applications and managed services," Post said. "We expect to continue to focus on driving growth from high bandwidth data services, including MPLS, Ethernet, Wavelength and voice-over-IP or VoIP services, by providing reliable connectivity to meet the growing bandwidth needs of our business customers."

Wholesale: In the wholesale segment, wireless backhaul continued to be a factor. During the quarter, the service provider completed about 500 fiber builds to end the quarter with more than 19,700 wireless towers connected to its fiber network, up 18 percent from the same period a year ago. CenturyLink said it lowered the annual estimate for fiber builds of 2,000 to 2,500 for the full year of 2014 due to continued customer decisions to defer certain sites into 2015.

Despite the gain in fiber-enabled towers, strategic revenues declined slightly to $568 million as increases in wireless carrier bandwidth demand and Ethernet sales were offset by declines in low-speed data revenue. Likewise, overall revenues declined 4.8 percent year-over-year, which reflects 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 Connect America Fund (CAF) Order.

"We continue 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 wireless carriers," Post said. "However, wholesale revenue growth continues to be impacted by the migration of low speed data services to fiber-based Ethernet, as well as increased network grooming by wireless carriers."

Hosting: CenturyLink's Hosting segment grew managed hosting (including cloud) and colocation revenues as cross-selling initiatives continued to strengthen sales opportunities. The segment's operating revenues were $358 million in the quarter, up 3.2 percent increase from the second quarter of 2013. A particular area of growth was Managed Hosting, where revenues rose 9.6 percent to $148 million. Meanwhile, colocation revenues were $158 million, a 1.9 percent increase over the same period a year ago.

"We continue to enhance our hosting and cloud services platform during the second quarter, with the launch of our Advanced CenturyLink Cloud technology to our Toronto data center, bringing our total 12 nodes, with the new technology," Post said. "Additionally, we opened a new data center in Minneapolis, offering collocation, cloud and managed hosting services connected to CenturyLink's IP backbone and global data center footprint."

Overall company operating revenues were $4.54 billion, including core revenues of $4.10 billion, down 0.2 percent year-over-year.

Looking toward the third quarter, the service provider has forecast that it expects operating revenues to decrease from the second quarter of 2014 to $4.47 billion to $4.52 billion due to expected ongoing declines in legacy revenue and an increase in operating expenses related to outside plant maintenance and utility costs.

Shares of CenturyLink were listed at $39.21, up 44 cents or 1.13 percent, in Thursday morning trading on the New York Stock Exchange.

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

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

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