Centurylink's Post: We will deliver the broadband speeds we can afford

CenturyLink (NYSE: CTL) currently offers a mix of broadband services that scale from as low as 10 Mbps up to 1 Gbps in some markets, but the service provider says the FCC's move to define broadband as 25 Mbps will not impact future or investments in its last mile network.

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Glen Post, CEO and chairman of CenturyLink, told investors that it will continue to roll out broadband to customers based on customer demand and the amount of capital it has to address such needs.

"I'd like to say that the new definition of broadband doesn't really impact us in a significant way," Post said during the earnings call, according to a Seeking Alpha transcript. "We're selling solutions, not just speed, so we'll continue to do that. It will change how we define broadband probably going forward but it won't impact necessarily our investment in broadband."

Evidence of this trend was seen throughout 2014 where the telco invested in its last mile network to improve both speed and availability across its network footprint.

Post added: "One direct result of this investment is that we grew the number of enabled access lines receiving 20 megabits and 40 megabits each by more than 45 percent over the prior year." 

CenturyLink executives also shed more light on the company's 1 Gbps fiber-to-the-premises (FTTP) and Prism IPTV plans, telling investors it plans to expand both services into new markets over the next few months.

In addition to expanding the 1 Gbps service to businesses in such markets as southern Utah, the service provider made the service available to residential customers in "select locations" in 10 cities, including Minneapolis, St. Paul, Denver, Seattle, Las Vegas and Portland. And, according to Post, it expects to expand the 1-Gig service further in the months ahead.

The service provider also plans to invest in its Prism TV capabilities. In 2014, the company added about 385,000 addressable homes, which Post said exceeded the company's 2014 target of 300,000 households.

"As of year-end, we had more than 240,000 Prism TV customers across addressable homes of 2.4 million," Post said. "We anticipate expanding Prism TV service to additional households and markets during the second half of 2015; we're not ready to announce specific markets at this time."

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

Consumer: In the consumer segment, the main story was growth of its broadband and Prism TV customer base. During the quarter, the service provider added about 12,900 new Prism TV customers, ending the quarter with a total of 242,000 customers while increasing the penetration rate to about 2.4 million homes passed to 10.2 percent.

"We've been pleased with the continued growth of Prism TV subscribers in existing markets where we further expanded Prism TV service in 2014," Post said.

The service provider also added nearly 18,600 high-speed Internet subscribers to end the quarter with a total of 6.08 million subscribers. Strategic consumer revenues were $727 million, up 6.4 percent year-over-year, while total consumer revenues were $1.49 billion.

Another notable development in the broadband space is that the service provider said it has not decided whether to accept or reject money from part two of the FCC's Connect America Fund Program, which is designed to bring speeds of up to 10 Mbps to rural communities.

Post said the plan is to provide an update later this year "when it is determined the extent to which the implementation of CAF-II will impact our future revenues and cash flows."

As expected, the service provider reported that legacy revenue declined 5.7 percent year-over-year due to lower local and long-distance voice revenue, partially offset by select price increases. It ended the quarter with a total of 12.3 million access lines.

Business: Strategic business revenues were $1.58 billion in the quarter, up 0.4 percent over fourth-quarter 2013, driven by strength in high-bandwidth offerings such as MPLS, Ethernet and Wavelength services, partially offset by declines in low-speed data services revenue. High-bandwidth data services grew nearly 13 percent over fourth-quarter 2013 driven by continued strength in sales.

However, total revenues were $2.7 billion, a decrease of 3.6 percent from fourth-quarter 2013, as lower legacy, private line and data integration revenues were partially offset by growth in high-bandwidth offerings.

"We continue to drive strong strategic growth, revenue growth from meeting businesses and government demand for our MPLS, Ethernet and Wavelength network services during the year," Post said. "Additionally, our Managed Office and Managed Enterprise Solutions continued to gain traction and are beginning to drive meaningful revenue growth due to increasing customer interest from both small and large business customers."

Similar to earlier quarters, wholesale revenue continued to be impacted by service providers, including wireless operators disconnecting lower speed copper circuits and replacing them with fiber-based Ethernet products.

Despite the decline, Post said the company has "had success mitigating our losses by expanding our fiber based wireless backhaul services; we now serve over 21,000 towers."

Finally, managed hosting revenues were $145 million, up 1.4 percent from the fourth quarter of 2013, while colocation revenues were $160 million, a 1.9 percent increase over the same period a year ago.

"Although our Managed Hosting sales are not where we want them to be, we are seeing success in selling our cloud and Managed Hosting Solutions," Post said. "And during the fourth quarter we added eight Fortune 500 companies as CenturyLink cloud and managed hosting customers. And finally, on direct channel, partners are beginning to sell our managed hosting solutions; we expect to additional partners in 2015."

Revenue: From a quarterly revenue perspective, CenturyLink reported fourth-quarter core revenues of $4.05 billion, down 1.5 percent year-over-year.

For the full-year 2014, CenturyLink's operating revenues declined slightly to $18.0 billion from $18.1 billion in 2013.

The service provider said that the decline in operating revenues was "driven by the impact of access line losses and lower access revenues, resulting in a decline in legacy revenues, and a decline in strategic private line services."

However, CenturyLink added that the revenue declines were "partially" offset by an uptick in strategic revenues due to increased business customer demand for high-bandwidth data services like Ethernet and hosting solutions along with growth in consumer high-speed Internet and Prism TV customers.

These revenue declines were partially offset by increases in strategic revenues resulting primarily from increased business customer demand for high-bandwidth data services and hosting solutions, along with growth in high-speed Internet and CenturyLink Prism TV customers.

Looking toward the first quarter of 2015, CenturyLink said it expects revenues to increase over the fourth quarter of 2014 to a range between $4.04 billion to $4.09 billion, a factor it says is primarily due to projected growth in strategic revenue offsetting the anticipated decline in legacy revenue.

Shares of CenturyLink were listed at $40.25, down 27 cents or .67 percent, in Wednesday after-hours trading on the New York Stock Exchange.  

For more:
- see the earnings release
- hear the earnings webcast (reg. req.)

Special Report: Wireline telecom earnings in the fourth quarter of 2014

Related articles:
CenturyLink lights 1 Gig service for southern Utah businesses
AT&T to sell some data centers for $2B, report says
CenturyLink outlines first Denver neighborhoods to get 1 Gbps service
CenturyLink wants Congress to update the 1992 Cable Act

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