CenturyLink sees Qwest merger as path to facilitate business, broadband growth
By Sean Buckley
March 3, 2011
Speaking at the Morgan Stanley Technology, Media and Telecom Conference, Stewart Ewing, Executive Vice President, Chief Financial Officer and Assistant Secretary, outlined how CenturyLink will capitalize on broadband, business and even mobile backhaul services.
This has been a change for a service that primarily had acted as a rural telephone company delivering mainly voice for much of its life--a strategy that's changed with its acquisitions of both Embarq and now the pending deal with Qwest.
"I think that it was a vision as much as anything else toward diversifying ourselves from the regulated revenues we depended on all of our history, including USF revenues and higher access revenues, realizing that there would come a day when those started to disappear and be redirected," Ewing said. "Part of it was by design to de risk the company from a regulated revenue standpoint."
Driving stickiness with broadband, video
During the fourth quarter, the number of Prism-capable homes
passed increased 60 percent and
One market segment that CenturyLink believes that it can use IPTV to better target the Multi Dwelling Unit (MDU) segment in its markets-one that it had not traditionally targeted in the past.
"We estimate that 25-30 percent of the addressable consumer
households are in MDUs, which represent a large market
opportunity for us that we have really lost over the years,"
Interestingly, CenturyLink has found that the addition of video to its residential service bundle has become a churn reducer.
"Our experience so far shows that video, whether it's satellite
or IPTV, has a significant impact on customer churn,"
Like Qwest, CenturyLink has also taken a Fiber to the Node (FTTN)-based approach to broadband. The only slight difference in approach to the delivering higher speed broadband is that Qwest has advocated a FTTN approach using VDSL2 and ADSL2+, while CenturyLink has been leveraging ADSL2+ with bonding and VDSL2 in select markets.
As a combined company, the new CenturyLink will have a total of 5.4 million broadband DSL customers.
Still, there are some challenges that both companies will need to overcome. While Qwest continues to make progress with building out its FTTN network, adding 92,000 new customers in Q4, it faces the ongoing issue of migrating customers off the legacy ATM-based DSL service to its IP-based VDSL2 service.
Despite the challenges of this transition, CenturyLink plans to complement Qwest's broadband efforts by "fill in holes they left in some of the metro areas to offer higher speeds," Ewing said," and like Qwest they "will look for opportunities when we build fiber to the tower for businesses or residential subdivisions that we're passing to see if we can enhance speeds in the legacy footprint as well."
New business opportunities
Ewing said that he does not "expect to get much from a synergy standpoint in the enterprise business because we did not have a business like that within CenturyLink," adding that "we will have some large customers transfer over to that group, but not a big infrastructure around the enterprise customer base."
By adding Qwest's business network infrastructure into its base, CenturyLink more business selling power for not only new Qwest customers, but also its legacy rural customer base.
Already, CenturyLink is seeing the possible effects of having Qwest's business services in its larger fold.
"We signed an agreement with Qwest that basically allows our
sales team to sell off their network,"
Among the many new business service opportunities that
"Qwest has a nice data hosting business that generates $200
million a year in revenue and we would like to convert that from
more of a hosted business to more of a managed services business
and a cloud computing business,"
In addition to expanding its managed service business, CenturyLink sees an opportunity to extend copper and fiber-based services, likely Ethernet, to metro area businesses.
"Another opportunity we'll look at more
will be opportunities for metro city fiber or copper where Qwest
has a need to reduce the cost of serving enterprise customers in
those larger markets,"
"These are not speculative investments, but rather are based on
5-7 year contracts, which guarantee minimum revenue streams for
the life of the contract, and we believe have opportunity for
upside as wireless broadband services continue to grow,"
Like Qwest, CenturyLink is bullish on the wireless backhaul opportunity. Both Qwest and CenturyLink currently provide wireless backhaul to Verizon Wireless and other large wireless operators.
In 2011, CenturyLink plans to build fiber out to 3,000 fiber cell towers, with each tower build estimated to cost in the range of $60,000 - $75,000.