CenturyLink’s Post: Cable’s 1 Gbps, aggressive pricing drove 65K Q2 broadband loss

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Interestingly, the service provider’s 1 Gbps FTTH service is having a halo effect where customers will purchase higher speeds of 40 and 100 Mbps.

CenturyLink found that the aggressive push by Charter, Comcast and Cox to deliver 1 Gbps over HFC had a great effect on its broadband subscriber base in the second quarter, resulting in a loss of 65,000 subscribers.

Glen Post, CEO of CenturyLink, acknowledged the higher 1 Gbps speeds via DOCSIS 3.1 and aggressive pricing plans during the telco’s second quarter earnings call was a big factor in the broadband losses.

Glen F. Post
Glen Post

“We had a seasonally challenging quarter from consumer broadband subscribers with an approximately 65,000 residential subscriber loss that was higher than anticipated,” Post said during the earnings call, according to a Seeking Alpha transcript. “This was driven to a great degree from stronger cable competition, particularly 1 gig offerings in some of our key markets, coupled with aggressive pricing.”

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Cable clearly continues to have an upper hand in the broadband race. Comcast and Charter, two of the largest cable MSOs, added 134,000 and 231,000 new broadband subscribers in the second quarter.

Meanwhile, Mediacom added only 6,000 broadband internet users in the second quarter, but increased its overall HSI base by 57,000 users over the last year.

CenturyLink noted that the majority of broadband churn came from customers that were on sub-10 Mbps promotional plans and enhancing its credit requirements.

“When you're looking at our net additions, what you're not seeing in that number is the speed mix,” said Maxine Moreau, president of consumer markets for CenturyLink. “So where we're losing customers is really on the low end like under 20 Mbps. But when you get to 20, 40 Mbps and above, we're seeing growth year-over-year in subscribers.”

Moreau added that as “the customers move in higher-speed tiers, we see a corresponding reduction in churn.”

Simplifying pricing, promotions

In order to battle future broadband losses, CenturyLink retooled its service and pricing structure.

This includes the telco’s Price for Life program, offering customers a discount that does not expire. The price is locked in and does not change unless you change your services, including change of address, and/or sign up for a different promotion.

CenturyLink rolled out the Price for Life in a number of markets, including all of its legacy CenturyLink markets. It is also rolling out the program in the legacy Qwest markets.

Post said that the Price for Life and other new pricing structures will mitigate future broadband churn and result in broadband additions later this year.

“In the second quarter we rolled out simplified service and price offerings that we called Price for Life, and part of our footprint, these simplified offers have improved sales trends and improved our early life churn results,” Post said. “We expect these changes to improve our consumer broadband trends in the last half of the year.”

The service provider emphasized that the new pricing plan began around early February prior to a class action lawsuit filed by a former employee that was fired earlier this year.

Moreau said “we have been implementing those throughout the year” so it “was well in place before any of this came up.”

Raising speeds

In tandem with simplifying the pricing and promotional plans, CenturyLink continues to enhance network speeds.

The service provider has continued to expand the availability of 1 Gbps FTTH in select markets and 40 Mbps over its existing copper-based network.

As of the end of the second quarter, CenturyLink had 9.4 million addressable locations that could get 40 Mbps or higher speeds and more than 3.8 million addressable locations that could get 100 Mbps. CenturyLink said this represents an increase of 240,000 and 350,000 addressable locations respectively, during the quarter.

“We continue to build on infrastructure and increase the availability of speeds,” Post said. “Where we have 40 Mbps or more speed, we're seeing good penetration in the marketplace.”

Interestingly, the service provider’s 1 Gbps FTTH service is having a halo effect where customers will purchase higher speeds of 40 and 100 Mbps.

“Even in the markets where we have gig, customers are not buying a gig,” Moreau said. “They might buy 40 meg, 100 meg even though we have 1 gig available. So from that standpoint, we'll continue to invest in enabling higher speeds in our footprint and competing with cable on a go-forward basis.”

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

  • Consumer segment: CenturyLink’s consumer segment revenues were $1.4 billion, a decrease of 6.2% from second quarter of 2016, primarily due to a decline in legacy voice revenues as well as lower broadband and video revenues. That was the result of increased cable competition and the impact of the restructuring of a satellite video contract in first quarter.

    The company said it is seeing strong customer demand in those markets where higher speeds and its "Price for Life" simplified offering have been rolled out to consumers. Per the industrywide trend, CenturyLink’s legacy consumer revenue declined 8.8% from second quarter 2016, primarily due to access line declines.
  • Enterprise segment: Enterprise segment revenues were $2.22 billion, down 9% from second quarter 2016, primarily due to the revenue reduction associated with the Colocation Sale, as well as the decline in legacy revenues. Taking out the impacts of the Colocation Sale, contracted price reductions for a wholesale customer and a favorable settlement in the year-ago period, Enterprise strategic revenues grew 4% and high-bandwidth data services revenues increased 5% year over year.
  • Financials: CenturyLink reported second-quarter operating revenues were $4.09 billion compared to $4.4 billion in second quarter 2016 driven by the decline in legacy revenues, as well as the revenue reduction due to the Colocation Sale. Core revenues for second quarter 2017 were $3.66 billion compared to $3.97 billion in second quarter 2016.