CenturyLink says there’s growth potential in MPLS, SD-WAN

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CenturyLink says there's plenty of life left in MPLS services. (iStockPhoto)

CenturyLink isn’t afraid of its MPLS revenue being eroded by next-generation SD-WAN. In fact, it maintains that there's still plenty of life in the nearly two-decade-old technology. 

While the telco does not break out MPLS revenues, CenturyLink maintains that interest in the service remains high and continues to grow among medium and large enterprise customers.

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Jeff Storey, president and COO of CenturyLink, told investors during its fourth-quarter earnings call that the service provider’s customer still find value in MPLS as a secure platform to connect their disparate locations.

Jeff Storey (Level 3)
Jeff Storey

“MPLS is an important product for us because our customers want it, they need it,” Storey said during the earnings call, according to a Seeking Alpha transcript. “They need secure communications between large branch offices and we can put multiple applications over the top of it. But we are also very excited about things like SD-WAN.”

Prior to purchasing Level 3, CenturyLink had developed an SD-WAN product and it continues to layer new services on top of that platform. Like other providers, CenturyLink will be offering SD-WAN in a hybrid environment where customers will continue to operate MPLS at some sites depending on specific needs.

Given the diversity of its business customer base, the telco reiterated that it will adapt the right service that best fits what a customer’s mission is.

“Our customers have networking challenges that are not solved by one-size-fits-all or one product fits all,” Storey said. “We will sell MPLS where that makes sense. We will sell the waves where that makes sense. We will go to our customers with SD-WAN where that makes sense. One of the things that we've become very good at, at CenturyLink is the migration of other old technologies onto new technologies. And I don't think it's an either or between SD-WAN and MPLS. I think it's both.”

Whether the telco is selling MPLS or SD-WAN, the other question for CenturyLink is how will the Trump administration’s recently passed tax reform bill affect its business service revenues.

While it will take time to see if the reforms will drive more of CenturyLink’s customers to ratchet up spending, the service provider sees potential stemming from the government’s move.

Sunit Patel, Level 3
Sunit Patel

“While we believe that tax reform is a positive, I think we look at the backdrop in terms of the demand environment for the kind of services we are offering and what customers are trying evolved to new hybrid infrastructures for both cloud and bandwidth requirements on their own premises, including how they interact with their customers,” said Sunit Patel, CFO of CenturyLink. “I think that in general, we continue to see bit growth which is why Jeff made the comment about on-net and driving our fiber footprint deeper across to serve all our customer segments.”

Analysts agree that tax reform could provide CenturyLink with an uptick business service revenues.

“Consistent with the 2% growth AT&T reported in Enterprise Solutions, CenturyLink was up ~6.0%,” said Macquarie Research in a research note. “Tax reform freeing up customer budgets combined with efforts to better segment clients and a greater focus/investment in its enterprise business should help top-line growth.”

To drive new potential growth in the business segment, the new CenturyLink will leverage its broader on-net fiber footprint it gained by acquiring Level 3 to pursue new business accounts and upsell existing customers.

“While we want to continue to sell services within the legacy CenturyLink territory, we also see the opportunities to sell to small and medium enterprises in on-net buildings outside of legacy CenturyLink network,” Storey said. “I'm very excited to now have the sales organization and processes in place to attack those buildings within the former Level 3 footprint.”