CenturyLink’s revenue dips to $4.21B as it forecasts lower Q2 broadband, video subscribers

corporate sign outside of an office park
Image: CenturyLink

CenturyLink’s first-quarter revenues slid to $4.21 billion, reflecting another round of weaker broadband additions and ongoing legacy TDM service losses.

Besides its lower first quarter numbers, the other issue that’s concerning investors is an expected downturn in second quarter broadband additions.

After reporting flat broadband growth in the first quarter, it appears that the pain will likely continue into the second quarter as the company expects seasonal trends to affect broadband subscriber counts. The telco ended the first quarter with a total of 5.9 million subscribers.

RELATED: From CenturyLink to Verizon: Tracking wireline telecom earnings in Q1 2017

Glen Post, CEO of CenturyLink, told investors during the first quarter earnings call that the ILEC expects broadband subscriber trends to improve in the second half of the year as it introduces new enhanced speeds in more of its markets.

Glen F. Post
Post

“We expect second quarter broadband and video subscribers and revenues to be negatively impacted by typical second quarter seasonality,” Post said during the earnings call, according to a Seeking Alpha earnings transcript. “We do expect to see improvement in consumer broadband and video subscribers and revenues in the second half of the year.”

Post added that the “improvement is expected to be driven by simplifying offers, customer experience improvements, continued progress on our broadband speed enhancement roadmap and a broader range of video offerings.”

Broadband expansion continues

Given the challenges it is facing in the upcoming quarter for broadband additions, an initial focus for CenturyLink will be on extending higher speed service to more households in its network footprint.

CenturyLink is now offering 100 Mbps to 3.5 million homes, while 9 million homes have access to speeds of 40 Mbps and above, representing an increase of what CenturyLink said was 200,000 addressable locations in each tier during the quarter.

Post said that in the areas where it is offering 40 and/or 100 Mbps, the telco is attracting more broadband customers and driving up average revenue per user (ARPU).

“Consumer broadband subscriber trends have been improving in the last several quarters and improved it again this quarter,” Post said. “The key thing to note here is that in areas where we are investing in higher speeds, we are growing customers and average revenue per user.”

Post added that customers who purchase higher speeds have “less propensity to churn and they pay a little bit more than our traditional customers that are starting to roll-off that basically had pretty good discounts when they signed up.”

By the end of 2019, CenturyLink set a goal to have 10 million addressable units at 40 Mbps, which is about 85% of its market. Nearly 42% or 11 million would have 100 Mbps and then it would have about 3 million that would be able to get 1 Gbps or above.

Focus on bundling, retention

Speed upgrades are only one part of CenturyLink’s method to steer its broadband subscriber back to growth. The service provider also plans to focus on offering various bundles.

While offering dual- and triple-play bundles of voice is nothing new, CenturyLink says that the bundling makes for more stickier customers.

“One of the things we're doing on the legacy losses, we're attaching voice to our bundles,” Post said. “It's going to be high-speed internet bundles, with our video bundles, and we think that's going to help some.”

As it markets its bundles to customers, the service provider will focus on honing its customer service skills to reduce potential churn.

“We'll keep aggressively marketing in those areas, and we have a strong retention plan as well going on, which we think has been effective and we will improve that in recent months, so that's why we're optimistic we can improve that some,” Post said.

Overall, CenturyLink’s segment results reflected the industrywide trend of dealing with the growing pains of next-gen services rising at a time when legacy TDM revenue continues its slide.

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

Enterprise: CenturyLink’s enterprise segment revenues were $2.36 billion, down 3.5% from first quarter 2016, a factor it attributes to a decline in legacy revenues, which was partially offset by 4.2% growth in high-bandwidth data services revenues. Total strategic revenues were $1.08 billion in the quarter, up 2.9% from first quarter 2016.

Consumer: Consumer segment revenues were $1.41 billion, a decrease of 5.2% from first quarter 2016, primarily due to a decline in legacy voice revenues, as well as lower satellite video revenues. Total strategic revenues were $764 million in the quarter, down 1.3% from first quarter 2016, due primarily to the restructuring of a satellite video services contract.

Legacy revenues for the consumer segment declined 9.2% from first quarter 2016, primarily due to access line declines. Operating expenses were basically flat compared to the same period a year ago.