CenturyLink won't buy Sprint, will focus on business, broadband opportunities

While rumors have been swirling around that CenturyLink may purchase Sprint--a company that interestingly enough spun out EMBARQ as a separate wireline division in 2006--CenturyLink's (NYSE: CTL) more immediate goalsis to integrate the assets it just acquired from Qwest Communications and Savvis Communications.

Stewart Ewing, CenturyLink

Stewart Ewing, CFO, CenturyLink: "Our focus is on integrating the Savvis and the Qwest acquisitions and really doing a good job before us today based on the platform we have."

Speaking at this week's Oppenheimer & Co. Technology & Communications Conference, Stewart Ewing, CFO of CenturyLink reiterated the goal of building upon the foundations that were previously built by Qwest and Savvis.

"We're not even thinking about it right now," Ewing said. "Our focus is on integrating the Savvis and the Qwest acquisitions and really doing a good job before us today based on the platform we have."

Beyond integrating the Qwest and Savvis assets, Ewing added that they would like to "exploit the real cross-sell opportunities" they think they have in business, wholesale and consumer services.

Curtailing broadband churn
Given that CenturyLink operates in some very competitive markets with a number of cable operators, growing consumer broadband, not surprisingly, is one of its big growth goals. 

In Q2 2011, CenturyLink reported that while it added 12,000 new broadband customers, it saw what it said was higher than anticipated churn driven by standalone high-speed Internet customers in the legacy Qwest markets.

Much of this churn, interestingly, was from customers that only subscribed to a broadband service exclusively and decided to end their subscription when the promotional price period ended.

"Our broadband churn was a bit higher than expected, which (we) attribute that to standalone sales that happened over the last few quarters at Qwest," Ewing said. "Our experience is that when you sell a customer that broadband product only when they come off a promotion they're more likely to churn."

To battle that problem, CenturyLink is actively pursuing those broadband-only customers at the end of the promotion cycles with offers for other products or finding something else to maintain their broadband relationship.

Ewing said that he thinks "that over time these measures will slow down the attrition rate that we saw this quarter."


"We have not made a final decision on rolling out IPTV in the Qwest markets, but part of that will be rolling out high speed Internet" - Ewing

One asset that CenturyLink does want to take advantage in the broadband arena is the former Qwest's ongoing Fiber to the Node (FTTN) network roll out to provide VDSL2-based service to a million homes each year. While not revealing specific plans, CenturyLink plans to continue growing the program in the former Qwest territories throughout the rest of 2011 and into 2012.

In terms of overall broadband speeds, CenturyLink today will be able to deliver 10 Mbps to 50-60 percent of subscribers in the legacy CenturyLink markets, while in the Qwest markets it's 40 percent.

"Part of the process of rolling out IPTV, which is currently available in eight markets with a little less than a million homes can get speeds between 20-30 Mbps," Ewing. "We have not made a final decision on rolling out IPTV in the Qwest markets, but part of that will be rolling out high speed Internet, and really IPTV will just be an application that runs on the high speed Internet connection we provide to customers."

Taking a holistic approach to rolling out fiber in its network, CenturyLink is leveraging the fiber it's deploying for its Fiber to the Tower initiative for wireless backhaul to shorten its copper loops for FTTN.

Although CenturyLink is facing a slew of new wireless backhaul seven-year agreements with two of the largest wireless operators, it plans to build fiber to at least 6,000 towers this year and probably another 6,000 or so in 2012.

Of course, the drive to fiber and Ethernet-based backhaul means obvious cannibalization of traditional T1 access revenue.

"You'll see some cannibalization of revenue as wireless carriers start turning those copper circuits down to start transitioning to fiber, but with wireless broadband growth expected to continue, we think over a period of 12 months you'll start seeing growth in special access," Ewing said.

Cross-selling opportunities
With Qwest and Savvis in its pocket, the new opportunity that CenturyLink can now chase is larger business accounts--something that the former CenturyTel only did on a limited basis.

From a revenue point of view, CenturyLink has shifted the focus of its customer base to 60 percent business and 40 percent residential.  

Taking more of a CLEC model that puts sales and support team people in every market it serves, Ewing believes that it can win over former customers Qwest lost in the SMB space, for example.

"By putting salespeople on the street, we think we can try to recapture market share in the SMB segment," Ewing said.

Likewise, the Savvis deal is a two-way-street opportunity. CenturyLink believes it can extend Savvis' cloud and managed service capabilities to existing Qwest customers, while Savvis can bring Qwest services (Ethernet) to its customer base.

"We're really happy with the Savvis platform and they think there's significant opportunities to not only sell their products into our enterprise customer base, but also to sell Qwest services to their existing customer base," Ewing said.

Outside of spending more capital on adding new data centers, but Ewing emphasized that any growth initiatives "will be customer driven and customer led, but very little from the Greenfield standpoint."

What about wireless?
Putting aside rumors that it may be interested in buying Sprint, the reality is that while CenturyLink (NYSE: CTL) may be the third largest ILEC in terms of access lines and network reach, the one missing link it lacks is a wireless component.

But even if buying Sprint is not on its immediate or long-term agenda, wireless is still a key element in CenturyLink's service portfolio.

One thing that no one should expect in the near-term is for CenturyLink to build out its own wireless network. Although the former CenturyTel did purchase some spectrum, the focus will continue to be on selling services via its agent reseller arrangement with Verizon Wireless (NYSE: VZ).

Through this reseller arrangement, CenturyLink will sell Verizon's 3G and newer 4G LTE data and voice services to its consumer and business customer base.

"Legacy CenturyTel wanted to have a wireless data platform, but it's insignificant to the rest of the company, but we're really pleased with the Verizon platform right now."

For more:
- here's the link to the speech

Earnings summary: Wireline in the second quarter 2011

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