CenturyLink seeks FCC approval to shut down Frame Relay, ATM service

CenturyLink (NYSE: CTL) is seeking to shut down its legacy Frame Relay and ATM services in both its Embarq and CenturyTel affiliate regions, reflecting the service provider industry's ongoing shift to IP-based Ethernet business services. It filed a similar application for its Qwest affiliate last year.

One of the primary reasons it is looking to shut down these legacy services is the equipment that supports them is no longer being made or supported by its main vendor, Alcatel-Lucent (NYSE: ALU).

"In 2011, CenturyLink was advised by equipment manufacturer Alcatel-Lucent that the equipment used for CenturyTel Frame Relay and CenturyTel ATM services would no longer be manufactured as of December 31, 2011 and that all support would be discontinued as of December 31, 2014," wrote CenturyLink in its FCC filing.

Today, CenturyLink has a total of 1,000 Frame Relay and ATM customers, a number of which are located in the former Embarq and CenturyTel territories.

The service provider said that because each affiliate is "subject to different regulation--for CenturyTel, dominant regulation, and, for Embarq, non-dominant regulation--CenturyLink has filed separate applications to discontinue those affiliates' Frame Relay and ATM services."

If the company does get the approval to shut down these services, a number of questions and opportunities remain.

A key question is how will the eventual shutdown of these services affect its existing customer base and the associated revenues from these services. The service provider sent a letter to customers saying that they have the option of moving to CenturyLink's IQ Networking Private Port service, Metro Ethernet or Private Line services.

But even without shutting down the service, the service provider continues to see more of its customers purchase or migrate to one of the IP-based Ethernet services.

During the second quarter, strategic business revenues rose 7.8 percent to $663 million due to sales of high-bandwidth offerings such as MPLS and Ethernet services.

CenturyLink is hardly alone in its desire to shut down these legacy services.

AT&T (NYSE: T) and Verizon (NYSE: VZ), while not setting a specific timeline, are keen to shut down their legacy ATM and Frame Relay services.

Fran Shammo, CFO of Verizon, told investors in 2012 that the service provider has told its Frame Relay and ATM customers that it is going to eventually shut down these services because it can't justify supporting these legacy services as the industry moves to IP-based services.

"If you look at technology change, we have been in the IP world for a number of years, but we still have customers that are on IP/VPN, frame and ATM, but they have to go away," said Shammo. 

Shuttering Frame Relay and ATM and driving business customers to Ethernet is a trend that continues to gain momentum. According to Vertical Systems, businesses continue to migrate away from legacy T-1 services to Ethernet, a factor that a new Vertical Systems Group report says will drive up customer installations to 1 million ports in 2018.

By making its acquisition of Qwest and expanding its suite of fiber and copper-based Ethernet services, CenturyLink has maintained a No. 4 spot on Vertical Systems Group's Ethernet leaderboard.

For more:
- see the FCC filing (.pdf)

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