Century Link Adds new Broadband Internet customers; reports drop in earnings (not counting recent acquisitions)

CenturyLink, which is acquiring Qwest, Embarq (former Sprint Local) and Savvis, added over 52,000 new DSL subscribers in the last quarter, bringing it to a total of 2.4 million broadband subscribers.  While DSL subscribership rose in Q1, CenturyLink was able to reduce access line loss to 13.6, an improvement over Q4 2010 and 15.2 percent over Q1 2010. At the end of Q1 2011, CenturyLink had 6,397,000 access lines. 

The carrier reported a 16% drop in profit, which came in at 69 cents a share, only a penny shy of analyst estimates.  Qwest results were not included in CenturyLink’s earnings report, because the telco purchase closed in early April.   Operating revenues for first quarter 2011 were $1.70 billion compared to $1.80 billion in first quarter 2010. The revenue decline was primarily due to the impact of access line losses and lower access revenues, including the anticipated impact of lower universal service fund receipts and wireless and long distance traffic migration. These decreases more than offset revenue increases driven by growth in high-speed Internet customers, data services demand from business customers and data transport demand from wireless providers.

Operating expenses, excluding special items, decreased to $1.20 billion from $1.22 billion in first quarter 2010, driven by lower transport costs due to the migration of legacy Embarq long distance traffic to our internal IP network and lower personnel-related costs.   These decreases were partially offset by higher costs associated with the expansion of CenturyLink™ Prism™ TV into additional markets.

Glen Post III, CEO and president of CenturyLink, said in the earnings release that in addition to “successfully integrating and operating the Embarq properties, slowing the rate of line loss in our business and meeting customer demand for high-speed Internet and high-bandwidth services.” 

“The addition of more than 52,000 high-speed Internet subscribers, expansion of CenturyLink’s Prism™ TV service to additional markets and growing demand for Ethernet and data transport services helped drive strategic revenue growth of 7% in the first quarter this year versus last year,” Post said. “Customer demand for bandwidth intensive services continues to increase, and CenturyLink continues to focus on delivering high-quality, reliable broadband services to meet this growing demand.”

“I believe the recently completed Qwest transaction and the pending Savvis acquisition significantly enhance CenturyLink’s position as a global communications leader and strengthen our ability to drive long-term shareholder value.”
Separately, Qwest reported $2.85 billion in operating revenues, down 4.1 percent from $2.97 billion in Q1 2010. However, it did see an uptick in strategic service revenues as a result of increases in Qwest IQ Networking and data transport services, as well as higher broadband revenues driven by subscriber growth and an improving mix of higher speed broadband services.  Qwest also saw a strong rise in broadband subscriptions with the addition of about 46,000 broadband DSL subscribers in Q1 2011. It ended the quarter with 3.0 million total broadband subscribers. As expected, Qwest saw its share of access line loss in Q1 2011. At the end of Q1 2011, Qwest had about 8.6 million access lines. The telco lost 223,000 lines in Q1 2011, which represented a 2.5 percent sequential decline and a year-over-year access line decline of 10.7 percent

CenturyLink won’t be extending its IPTV service to existing Qwest customers anytime soon.  While CenturyLink now offers its Prism IPTV service in a few select markets, Qwest (an early telco TV pioneer) has been delivering satellite TV services and pursuing a hybrid Over the Top video vision.  Without the video component, CenturyLink faces some strong cable competition from cable operators like Cox in it’s local markets.  That MSO offers 50 Mbps- DOCSIS 3.0 based Internet access as part of a triple play bundle in markets like Phoenix, Ariz. 
“We are getting more local — competing with the CLECs and cable companies who have been taking market share from Qwest,” said Karen Puckett, EVP and COO of CenturyLink.

On 04/27/2011, CenturyLink announced a definitive agreement to acquire all outstanding shares of Savvis common stock.  It’s a cash and stock merger valued at $40 per share, or a total of approximately $2.5 billion, plus net debt of approximately $0.7 billion which will be assumed or refinanced at close.   Savvis is a leading provider of cloud based services, colloacation and managed hosting.  They use their traffic engineered, IP-MPLS private network (rather than IP VPNs over the public Internet) to deliver LAN like network performance to its business customers.  In our opinion, this will give the company a huge advantage in delivering cloud computing services.

With the addition of Savvis, CenturyLink will achieve global scale as a managed hosting and colocation provider and will accelerate its ability to deliver quality managed hosting and cloud capabilities to its business customers. The combination of CenturyLink’s hosting and network assets with Savvis’ proven solutions in colocation, managed hosting and cloud services substantially enhances CenturyLink’s capabilities and provides the company with a solid platform for future growth.

“The transaction creates a premier managed hosting and colocation provider with global scale in a high growth sector, and is expected to be accretive to revenue growth and cash flow per share,” said Glen F. Post, III, CenturyLink CEO and president. “Today, businesses are shifting the way they manage their information technology services and infrastructure, and this transaction helps us meet these needs by offering Savvis’ leading products and services coupled with CenturyLink’s network. We look forward to working with the Savvis team to leverage CenturyLink’s significant scale and scope to fully realize the potential of Savvis’ capabilities for our combined customers, while also enhancing value for our shareholders and providing opportunities for our employees.”  

“As migration to cloud-based services continues to accelerate rapidly, a strategic combination was a natural choice to create significant scale and become part of a large global network for the benefit of our customers, stockholders and employees,” said James E. Ousley, chairman and chief executive officer of Savvis. “We believe that combining our proven capabilities in cloud infrastructure and managed hosting with CenturyLink’s hosting assets and large base of business customers will create powerful opportunities to accelerate growth. We also look forward to making the full resources of a much larger network infrastructure available to our customers.”

Together, CenturyLink and Savvis will operate 48 data centers located in North America, Europe, and Asia with more than 1.9 million square feet of gross floor space; a robust, national 207,000 route mile fiber network; a 190,000 mile global access network; and have a customer list that includes a majority of the Fortune 500 and Fortune 1000 companies

For all Century Link Press Releases, please visit:  http://news.centurylink.com/

Comment:  This author has had two interviews with Savvis Network Professionals and came away very impressed with the emphasis the company is putting on their IP-MPLS network to deliver a variety of cloud computing services to business customers.  We are planning a separate article that will look in depth at Savvis’ private network for cloud computing.  Please let us know your interests in that area by emailing the author ([email protected]) or commenting in the box below this article.