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With CenturyLink-Qwest merger done, No. 3 telco targets AT&T and Verizon

Jessica Scarpati, News Writer

April 13, 2011

Although we've only scratched the surface on 2011, it's already been a busy mergers and acquisitions (M&A) season for telecom. Sandwiched between the bombshell AT&T dropped in late March regarding its plans to buy T-Mobile and news this week of Level 3 Communications' $1.9 billion bid for Global Crossing, CenturyLink Inc. quietly finalized its merger with Qwest Communications on April 1.

Upon the completion of the CenturyLink-Qwest merger, the combined companies made CenturyLink the third-largest telecom operator in the United States—behind AT&T and Verizon—in terms of access lines and high-speed Internet subscribers. Chris Ancell, president of CenturyLink's newly formed Business Markets Group, tells how the completion of the merger has made the combined companies more competitive in selling IT services to enterprise and government customers. Broadly speaking, what does the completion of the CenturyLink-Qwest merger mean for the combined company’s business services division?

Ancell: I would probably combine the significant areas of impact under the terms "scale" and "improved scale for our business." The scale basically manifests itself in two ways. The first is just in terms of a larger fiber network and particularly [a larger] local fiber network. CenturyLink adds significantly to what Qwest had previously, so that we wind up with a fiber network that's about 190,000 [fiber-]route miles ... [which] nearly doubled our previous local fiber footprint. What that really does is it helps with access.

No matter how great the backbone network is, ultimately you need to get on that backbone. And that comes down to access. Particularly in industries that have broad distribution of location—and the two that immediately come to mind are financial services and retail—a broader access [network] footprint is a big benefit, and that will be a significant benefit for us going forward. That's the first component of scale.

The second component of scale is just the financials of the combined companies. We establish ourselves as very clearly the No. 3 telecommunications provider. Revenue is significant.  And as you flow the revenue all the way down, cash flow is [improved, which] allows you to do things in terms of being a [stronger] competitor and introducing new products and services that meet the needs that our customers have. How does the completion of the CenturyLink-Qwest merger affect your strategy for competing with AT&T and Verizon, in terms of selling IT services?

Ancell: It probably doesn't change. Our focus within business markets has always been it's a share-taking focus, and we continue to look to differentiate when we meet with customers around the service we provide. That "service" [encompasses] everything from how we go through the contract negotiation process to how we expedite orders to how we provision [services] to the flexibility that we'll offer [for our] service.

Service is really the differentiating feature. But make no mistake that we look to take share in the space, and [because] those are the two biggest shareholders, it's a constant [strategy] to take share from those two big players. Can you be more specific, in terms of how the CenturyLink-Qwest merger enables you to take share from AT&T and Verizon in particular products or markets for selling IT services?

Ancell: One that continues to be out there—while sometimes I think it dips down in terms of visibility and attention—is the Networx contract [program] in the federal government space. That continues to be a significant source of opportunity, so [Qwest has] sold against that [program] over the course of the last two years and [has] won some pretty significant business.

As surprising as it may be, some of the government entities have still not made the transition to the Networx contract, so that's one significant area of focus: to continue to take share in that federal space as those entities continue to bring themselves under the Networx contract. The previous [versions of the contract program's] big participants were AT&T, Verizon and Sprint, and with the latest iterations [of the program], the three big participants who have the contract vehicle to sell into are AT&T, Verizon and Qwest, now CenturyLink. It seems you can't be selling IT services these days without a cloud strategy. Qwest was selling cloud services prior to the merger, but what about CenturyLink? What does the completion of the CenturyLink-Qwest merger mean for the combined company’s cloud strategy going forward?

Ancell: CenturyLink was absolutely doing work on reviewing customer requirements and awareness of what was going on in the market. They didn't have any products in the market as of the time that we closed the merger, but it's absolutely an area of focus and there's a recognition that real opportunity exists there.

I'm not a big fan of 'the cloud' term only because it seems overused. One of the things we have been very focused on—unlike some others, and we don't have to name any names—is that we're not going to go out and rebrand our entire portfolio as cloud all of a sudden. We're focused on introducing services that meet customer demands.

You will see information from us ... as we put those things into the market, but [the cloud] is an area of focus. What we refer to it more as is "on-demand services." If you want to go back and rebrand everything, I guess technically you could call Centrex a cloud service because it's delivered over the network.  But [our strategy for] on-demand services encompasses everything from the network itself to compute cycles, storage, applications—all provided on an on-demand basis. Then you get into specifics under each [service]. You have backup and recovery in that storage space; you have just raw storage in that storage space. You have all different kinds of permutations in computing cycles in how you turn those up and turn those down.

In the end, it's about providing all of those infrastructure components in an on-demand basis. We're very focused on that and particularly in understanding what customers are really looking for because despite all the hype, there still is a lot of evolution that's going on in [terms of] what customers are really looking for.