CenturyLink says MPLS share continues to grow in face of SD-WAN competitive threats

business growth

CenturyLink and its newly acquired asset Level 3 Communications may be facing plenty of competition from new entrants that want to steal market share with SD-WAN, but the service provider maintains that MPLS services are still growing.

Glen Post, CEO of CenturyLink, told investors during its third-quarter earnings call that MPLS grew 5% year-over-year, rising above the average market growth rate.

Glen F. Post
Glen Post

“We don't talk about the percentage of revenue of MPLS, but over the last month it's been in the 5% to 7% range for MPLS growth,” Post said during the earnings call, according to a Seeking Alpha transcript. “What's really important here is that there's a lot of concern about SD-WAN coming in with smaller providers coming in and taking market share away from us or MPLS customers away.”

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Post added that it has not seen any large effect from competitors offering SD-WAN services in their territories yet.

“We have not suffered to this point from these companies coming in and competitors coming in and taking these customers away from us,” Post said.

Jeff Storey, who is now CenturyLink’s president and COO, agreed and added that the service provider is equipped to help provide business customers with the best technology that fits the needs of a specific application. This might include a case where CenturyLink sells an MPLS circuit where an SD-WAN product would have been a better fit, but the company will manage those transitions.

Jeff Storey
Jeff Storey

“Are there headwinds that could come from SD-WAN and other technologies that are being developed? Of course, there are,” Storey said. “But we're exceptionally good as an industry in dealing with those technology transitions and transformations. And we will be, as a company, very successful in dealing with those things and making sure that we continue to focus on satisfying our customers' needs for networking services with profitable revenue and making sure that we're investing in the infrastructure and it will be another tool that we can go to the market with.”

Legacy, next-gen challenges

Despite the growth in MPLS services, CenturyLink continued to see ongoing challenges in the quarter with lower than expected Ethernet service revenue and ongoing legacy service declines.

For the quarter, enterprise revenues were $2.17 billion, down 11.2% from the third quarter of 2016, which was due to the reduction associated with the colocation sale, as well as the decline in legacy and data integration revenues. Additionally, the service provider continued to see declines in CPE sales.

“We generated about $20 million less growth in high-bandwidth data services than anticipated, including approximately two-thirds of which was driven by contract renewals, pricing pressure with the remainder due to lower sales and installs than anticipated,” Post said. “And we had about $10 million of lower legacy revenues, primarily lower LD and private line.”

Post noted that while the service provider had an “aggressive plan” for strategic revenue growth, the company had set a bar higher than the 5% growth it saw.

“The primary issue is we had a very aggressive view of the strategic revenues, high-bandwidth revenues on the enterprise side,” Post said.

Overcoming uncertainty

Another element that also had effect on CenturyLink’s enterprise revenue was uncertainty related to the company’s purchase of Level 3 Communications.

One of the key concerns that CenturyLink’s business customers had was the time it was taking to get the necessary approvals to complete the deal, which was delayed until this month.

“One of the things that the sales team refer to is just the uncertainty that's been caused by the elongated process of bringing these two companies together,” Post said. “And I realize it's somewhat of an excuse, but it's real to these folks and they're uncertain of where they're going to be.”

Storey agreed and said many of the discussions about the merger it had with business customers tended to focus on what discounts they would be able to get after the deal closed.

“I think some of them want to know if I spend more with you, am I going to get a better discount? If I wait until after the close, am I going to get a better price?” Storey said. “I think there are some of those things that have gone on, but nobody's come to me and said or anybody that I've gone to has said, wait a minute, we're really concerned about this.”