CenturyLink wants to become the premier U.S. fiber-based provider for business customers, according to Jeff Storey, CenturyLink’s president, CEO, and former Level 3 CEO. Storey pledged to continue to aggressively expand its fiber footprint because fiber, he said, will ultimately beat out all other connectivity options in terms of performance, especially for next-generation use cases that are happening at the edge of the network. Two such edge computing customer examples were given (see below).
“Expanding our fiber is a major area of focus for us … Fiber beats twisted pair copper, hybrid fiber coax, and it beats wireless, whether it’s 5G or not, fiber wins,” Storey told investors during the telecom’s Q2 2019 earnings call on Wednesday evening, August 7th. Fiber is one way that CenturyLink plans to boost its Enterprise and Small and Medium Business revenues, executives said. From the Century Link earnings call transcript, Storey said:
As I mentioned last quarter, we added 4,500 new fiber-fed buildings to our on-net footprint in the first quarter of 2019. We continued that focus in the second quarter with the addition of approximately 5,000 new fiber-fed buildings. For contrast, Level 3 used to add something closer to 500 buildings per quarter, so I want to emphasize expanding our fiber footprint is a major area of focus for us.
We know that when we have a building on-net, our fiber based services provide a better, more reliable, and higher margin solution than competing infrastructure. [indiscernible] wireless whether that’s 5G or not, fiber wins. It’s highly flexible and increasing speeds, it is secure and really is the basis for all the other competing technologies. We just do one thing differently. We take fiber all the way to the customer, and customers always want fiber when they can get it. You can expect us to continue investing to expand the reach of our access fiber network.
Beyond just being a superior technology, though, fiber is well suited to meet the demands of emerging opportunities driven by artificial intelligence, machine learning, and big data applications. Fiber-based solutions are better able to satisfy what we see as four key market trends. The need for highly scalable capacity, now ranging into multi gigabits per second; the need for connecting and increasing number of widely distributed locations; the need for the network itself to protect the privacy and security of our customers; and finally, the need to move bandwidth intensive computing resources closer and closer to the edge to reduce latency and unnecessary backhaul of traffic.
Expanding our on-net building footprint certainly helps us meet these needs. But we’ve implemented a number of other initiatives to ensure CenturyLink maintains our position as the premier fiber based provider for enterprise customers.
Our North American subsea fiber routes are a unique asset, and as I said earlier, we believe it represents the world’s most scalable and efficient fiber network. However, we are further augmenting our capabilities. We also own an extensive and unparalleled conduit system that we leverage to bring the latest generation fiber capabilities to market with extraordinary speed and economic efficiency. Each of the long haul networks we’ve acquired Level 3, Qwest, WilTel, Broadwing all had multi conduit builds.
Within the Level 3 network alone, we built 12 conduits to ensure we had sufficient space to grow and evolve this capacity in fiber technology evolved. Most of those conduits are still available for further network augmentation. But we’ve also interconnected all of those conduit systems to cherry-pick the shortest and lowest latency pass across the country. As illustrated on slide five, we recently announced the deployment of Corning’s latest generation of ultra-low loss fiber to build the world’s best, most scalable optical infrastructure. This new technology enables higher capacity and more efficient optical design than earlier fiber technologies.
Coupled with the selecting the shortest physical path between any two endpoints, we also improved latency significantly, which is a key factor for hyper scalars, bandwidth intensive enterprises, and dark fiber customers. We’ve completed 3.5 million miles of our current plan to build a total of 4.7 million fiber miles with ultra-low loss fiber roughly 75%. We continue to see demand for additional routes, and we’ll consider those to meet future customer needs.
We recognized that access and long haul transport only part of the solution. There’s increasing demand for computing capabilities at the edge of the network, and we believe we’re uniquely positioned to capitalize on this market opportunity. In addition to our far-reaching fiber network, we operate a large number of edge locations that are well suited to enable edge computing. In the coming weeks. We expect to announce the details of our investments in our widely distributed and extremely well connected edge computing infrastructure.
Storey gave two examples of Edge Computing using Century Link’s scaleable fiber network:
Let me give you a specific example from a customer of what fiber-based edge computing capabilities can mean for them. Slide 6 shows an actual customer with close to 2,000 nationwide locations. We are working with this customer to evaluate the effectiveness of our edge computing solutions to more efficiently run applications and process huge amounts of data very close to the origin of that data. On this slide, you can see that our existing infrastructure is positioned within five milliseconds transport time for 95% of their sites. This means that the customers applications and data can be processed more efficiently from a 100 or so of our edge locations, rather than processed on premise at 2,000 separate sites, even worse with the customer or backhaul to a central location.
In addition, our dynamic networking capabilities can provide real-time network provisioning from the customer premise to our edge, and then onto major cloud service providers. This example is for a specific customer, but the results are indicative of what we see from other customers we are currently working with.
This application can be an important solution for retail, banking, and really anyone that has a number of dispersed service locations that need to process large amounts of data in real time. The combination of our fiber network with edge computing infrastructure and managed services support is a very powerful and differentiated service offering. We are not suggesting that edge computing will eliminate the need for today’s hybrid computing or hybrid networking. To the contrary, our customers will continue to build and operate their own data centers, continue to move compute resources to public data centers and specific applications to cloud service providers.
Our customers want to dynamically manage their network and put different types of workloads in different environments. Through our wide array of hybrid networking solutions. CenturyLink provides the flexibility to do so easily. CenturyLink enables this flexibility with services like dynamic connections, which allows our customers to make instantaneous changes to their network, capacity, and configuration, and our cloud application manager, which allows customers to manage their applications across hybrid cloud environments through a single seamless interface.
Our network was purpose built to enable us to expand at the lowest cost in the industry. That’s a big advantage. It allows us to go to market quickly and invest in these types of growth initiatives within the bounds of our ongoing capital plans. The sufficiency is demonstrated in our ability to invest in all of these initiatives as well as other growth opportunities within the scope of the capex outlook we provided for the full-year 2019.
I’ll give you another specific customer example of how investments in flexible scalable fiber-based connectivity are helping us win in the market. We recently won a contract provide secured cloud connectivity to the US Census Bureau for the upcoming 2020 census. We will formally announce this contract later this week. To support the Census Bureau’s objectives, to provide the best mix of timeliness, relevancy, quality, and cost for the data they collect and the services they provide, CenturyLink will help to collect the census digitally by providing the bureau with managed trusted internet protocol services or MTIPS at speeds of 40 gigabits and higher.
MTIPS, a managed security service that provides secure cloud-based connectivity, will support the online system that will be available to all households completing the 2020 survey. The solution also allows the Census Bureau to access the responses via secured-cloud applications for the first time. CenturyLink was selected by the Bureau due to our ability to meet their requirements for scalable connectivity and will play an integral role in helping the US Census go digital in the most secure, reliable, and cost effective way as it takes an important mission of completing the 2020 census.
The census is obviously a unique example, but that’s the point of hybrid networking solutions from CenturyLink. Our customers can enable the capabilities to address their particular need. This solution highlights our ability to provide scalable, flexible network solutions that we believe are defining the next generation of enterprise networking.
Enterprise networking, a segment that includes CenturyLink’s high-bandwidth data services, managed services and SD-WAN services, declined 1.2% and was at $1.50 billion during the carrier’s fiscal second quarter compared to $1.52 billion in 2018’s Q2. However, Storey said that the company expects enterprise revenues to rise during the second-half of the year.
Small and medium business sales fell 11 percent during the quarter to $736 million compared to $819 million in Q2 2018 despite CenturyLink trying to focus strategic IT services geared toward the small and medium business market. Neel Dev, CenturyLink’s executive vice president and CTO, said that SMB revenue declines are largely driven by legacy products, but that the carrier “feels confident” it can return to profitability by selling to more businesses on its on-net fiber footprint.
Lisa Miller, CenturyLink’s president of wholesale and indirect channels and alliances, is “committed” to selling to small and midsized businesses who were outside of the legacy CenturyLink footprint.
“Level 3 didn’t focus there because they weren’t the type of customer we focused on, CenturyLink never focused there because they didn’t have the network to sell to those types of customers,” Storey explained. “It’s now a great opportunity for us and we need to focus and drive toward new opportunities with these customers.”
Consumer revenues continued its downward trajectory, falling by 8.4 percent to $1.42 billion during the quarter compared to Q2 2018’s result of $1.54 billion. CenturyLink today generates three-quarters of its revenue from business customers. During the provider’s Q1 2019 earnings call, Storey revealed that it was considering shopping around its consumer business. The executive said that CenturyLink’s internal teams are making “good progress” with the review, but that it will be a lengthy and complex process. In the meantime, Storey said the company won’t modify consumer investments and will continue to transform the Consumer business unit.
For the quarter which ended on June 30, Monroe, La.-based CenturyLink reported net income of $371 million in Q2 2019, which increased 21 percent compared to last year’s result of $292 million. The company reported total revenue of $5.58 billion and diluted earnings per share of 35 cents, a decline of 5.4 percent compared to $5.90 billion and 27 cents per share in the year-ago quarter. CenturyLink’s revenue came in just slightly lower than Wall Street analysts’ estimate of $5.59 billion.
In the first half of 2019, CenturyLink grew adjusted EBITDA by 80 million compared to the first half of 2018, while revenue declined more than 600 million over the same period. This was driven in part by our focus on adding profitable revenue in de-emphasizing unprofitable lines of businesses, managing legacy product declines, along with synergies and our cost transformation initiatives.
Total revenue in the first quarter declined 5.5% to 5.58 billion. Quarter-over-quarter, total revenue declined 1.2% compared to the 2.3% sequential decline we saw last quarter. In the enterprise segment, revenue declined 1.2% both year over year and sequentially. This compares to a decline of 1.6% year over year and 2.2% sequentially in the first quarter 2019. SMB revenue decreased 10% year over year compared to a decline of 3.7% in the first quarter 2019.
Neel Dev: “The revenue declines on the SMB business are largely driven by legacy voice. We feel good about our ability to sell into our on-net building footprint with a large addressable market opportunity. Wholesale revenue decreased 8.8% year over year. As we referenced last year, in the second quarter 2018, wholesale revenue included a favorable dispute settlement with a large carrier. Sequentially, we saw a decline of 1.8% compared to a 3.4% decline last quarter.”
Broadband revenue for the second quarter 2019 grew 1.8% year over year which compares to growth of 1.4% last quarter, driven by our efforts to increase penetration in our competitive assets and investing in fiber.
Voice revenue on a year over year basis declined 13% this quarter compared to 12% last quarter. The decline in other revenue continues to be driven by our decision to de-emphasize our Prism video product. Regulatory revenue is down year over year due to the adoption of new lease accounting standard.
In summary, we remain focused on execution specifically on improving revenue trajectory for the second half of 2019, maximizing profitability and remain discipline on our cost transformation and deleveraging initiatives.