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ILEC 3Q11 Results: CenturyLink

Integration of Acquistions Right on Course

CenturyLink impressed investors on November 2 with its third quarter results and its progress in integrating several major acquisitions over the past few years, including Embarq, Qwest and cloud computing concern Savvis. In the company’s 3Q11 conference call, ceo Glenn Post outlined the company’s progress in four areas that are considered critical to CenturyLink’s future growth: broadband expansion, fiber-to-the-tower (FTTT), managed hosting/cloud services and its residential IPTV offering Prism TV.

Despite solid results in these key growth areas, however, pro forma revenue continues to slide with access line losses—although the line losses have slowed to a 7.1% pace in the trailing twelve months, compared with a pro forma 7.8% decline the year prior. Another positive note: the company says it is on track to achieve all of the anticipated synergies from its three acquisitions on schedule, and that once all integration is complete, it will save $1b a year in operating and capital expenditures.

The company saw improved broadband connections growth in the quarter, adding 57k new high speed Internet customers in the quarter, compared with just 12k net adds in 2Q11. The company is deploying fiber-to-the-node (FTTN) infrastructure and now passes 5.5m housing units. CenturyLink has also enabled over 330 central offices with Ethernet over copper capabilities, which is targeted toward the small/medium business (SMB) market.

In its FTTT efforts, Post noted that they added nearly 1,000 new sites in the quarter to bring the total to 8,200. He added that another 2,000 sites will be connected in 4Q11.

Post commented that the company is expanding its data center capacity in response to growing demand for Savvis’ managed hosting and cloud services, although he also mentioned that the difficult economy has had an impact on new bookings; 4Q11 bookings for Savvis are expected to improve. Post added, “Managed hosting and cloud services are important for the future of our industry and we are committed to investing in this key growth driver. As part of this commitment, we are expanding our datacenter footprint in five cities to bring our total sellable square footage to approximately 2 million square feet by the end of this year.”

Finally, Post described how its Prism TV service is slowing access line losses and helping increase broadband penetration. “Over the past 12 months, our Prism subscriber base has grown 103% with nearly 25% growth in the third quarter alone. In terms of pull-through of other services, 70% of our Prism customers have a triple play and almost 50% of our Prism adds are new customers with strong attachment rate to high-speed Internet and voice services.” Prism TV is now available to 1m households and CenturyLink intends to deploy to between 4.5m-5m by 2015. Post also noted that by leveraging existing network investments like FTTN, its cost per household to deploy Prism TV is below $200.

Overall it seems CenturyLink is achieving its goals with its recent acquisitions and focus on higher growth areas—though it still has some work to do to make up for access line losses, particularly now that it owns Qwest.

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