Entries in CenturyLink:CTL (13)


DirecTV and AT&T Narrow the Gap for Top Spots in Video, Wireless

3Q11 Connections: Ten Largest Providers

The top providers by connections in all categories remained the same in 3Q11: AT&T (NYSE:T) in wireline voice, Verizon (NYSE:VZ) in wireless and Comcast (Nasdaq:CMCSA) in video. In wireless and video however, the second place finishers narrowed the subscriber leads in 3Q11, outgaining the top dogs for the quarter.

While AT&T has had a difficult month on the T-Mobile front, the #2 wireless provider outperformed Verizon in 3Q11. It added 2.1m wireless connections in the quarter--surpassing the 100m mark--and outgained Verizon by 700k connections. Overall, the top ten wireless providers added a combined 4.9m connections in the quarter, while the top ten wireline voice providers lost nearly 2m voice lines.

In the video top ten, it was DirecTV (Nasdaq:DTV) making a charge at #1 Comcast in 3Q11. Benefiting from the move to offer its flagship NFL Sunday Ticket package for free, the leading satellite provider added a net 327k U.S. subscribers in 3Q11—its best third quarter gain in six years. DirecTV took nearly 500k subs off of Comcast’s lead, as the leading cableco shed 165k video subs in the quarter. With 19.8m video customers, DirecTV trails Comcast by 2.6m connections. Elsewhere, AT&T and Verizon both experienced around 2.5% growth in video subs QoQ, the strongest percentage growth of the top ten providers.

In wireline voice, the four cablecos in the top ten reported slim QoQ connection gains in 3Q11, while the six LECs in the top ten shed a combined 2.1m connections in the quarter. AT&T accounted for a majority of the losses, dropping 1.2m connections, or 3% of its wireline voice customer base. The #2 and #3 wireline voice providers didn’t fair much better, as Verizon and CenturyLink (NYSE:CTL) lost 478k and 254k subs QoQ in 3Q11.

Looking ahead in the top ten categories, the battle for first in wireless should be interesting to watch. After a strong 3Q11 for AT&T, its acquisition of T-Mobile is now on life support, creating some uncertainty for company. Meanwhile, through its spectrum acquisition from the cablecos, Verizon is making moves to solidify its top spot in wireless.


2Q11 Connections: ILEC Quarterly and Annual Growth Rates

Wireline Voice Losses Outpace Fiber Growth

The steady decline in wireline connections continued for ILECs in 2Q11, as overall connections fell around 1% for the publicly traded LECs QoQ.  Second quarter adds of broadband and video connections could not make up for the 1.8m loss of wireline voice connections.  

ILECs across the board experienced QoQ wireline losses in 2Q11 with the exception of slight gains reported by CenturyLink (NYSE:CTL) and SureWest (Nasdaq:SURW). CenturyLink’s overall gain was fueled 1.4% QoQ growth in video connections, while SureWest added broadband and video subs.

The smallest LEC in our sample, Warwick Valley Telephone Company (Nasdaq:WWVY), experienced the sample's largest percentage loss of wireline connections in 2Q11 (1.9% QoQ), driven by a 3.2% drop in voice connections.  Meanwhile, the largest LEC by connections, AT&T (NYSE:T), also lost approximately 3% of its voice connections in the quarter and accounted for 86% of the net wireline losses.

Growth in fiber optic video fueled the largest wireline gains in 2Q11.  Cincinnati Bell (NYSE:CBB) reported 10% connections growth in its “fioptics” video services, while NTELOS’ FTTH video customer base grew 5.2% in the quarter.

The annual wireline growth trends in 2Q11 were merely an extension of the quarterly results.  On a weighted average basis wireline voice connections fell 10.7% on the year, while broadband and video connections have grown 10.9% and 15.4% YoY.

The main area of wireline growth for both small and large ILECs has been in fiber based services. NTELOS (Nasdaq:NTLS) increased its wireline connections 75% YoY, using M&A to expand its fiber services, and now is in the middle of a FTTH build in Virginia. Verizon and AT&T have experienced wireline losses overall, but are increasingly reliant on their FiOS and U-verse FTTX services for growth. Elsewhere, Cincinnati Bell has invested $48.1m in its fiber optic network thus far in 2011, and SureWest plans to extend its FTTH services to 15.5k homes by the end of the year.


2Q11 Connections: Ten Largest Providers

Smartphones and Tablets Accelerate Wireless Growth 

Compared to 1Q11, there was not a lot of movement among the top communications provider rankings, as AT&T (NYSE:T) extended its lead in wireline, Verizon (NYSE:VZ) topped wireless and Comcast (Nasdaq:CMCSA) took first place in video once again in 2Q11. While the rankings haven’t shifted much, there are some interesting trends at play within the top ten lists.

If you compare the top ten sub totals in all three categories, the wireless count continues to dwarf the video and wireline connections by increasing margins in each quarter. The upward trend in wireless is directly linked to the popularity of smartphones, and other wireless connected devices such as tablets, and netbooks. Verizon and AT&T combined to activate around 6m iPhones in 2Q11, which included nearly 1.5m new subscribers. The two wireless giants alone accounted for 205m wireless subs in 2Q11, and industry-wide there are now more wireless connections in the U.S. then there are people according to a recent CTIA report.

Elsewhere, in video, the subscriber base for the leading cablecos continued to erode in 2Q11, while satellite providers and telcos enjoyed slight gains. The top video provider, Comcast, shed a net of 238 video subs while cablecos Time Warner Cable (NYSE:TWC) and Charter (Nasdaq:CHTR) combined to lose 225k video customers in 2Q11. Placing #2 in video, DirecTV (Nasdaq:DTV) put some distance between itself and fellow DBS provider DISH Network (Nasdaq:DISH) with 500k adds, only 26k of which however came in the United States. In the middle of the video top ten, AT&T and Verizon continued to improve penetration of their FTTx options, U-verse and FiOS, leading to moderate customer gains.

The top mover in any category was CenturyLink (NYSE:CTL) in wireline, as it closed its Qwest acquisition in 2Q11, netting it Qwest’s 8.6m connections. With over 15m total wireline connections, CenturyLink jumped to third place in the wireline top ten behind AT&T (41.2m connections) and Verizon (25m connections).


Six Degrees of Separation: Winners, Losers and Movers

CenturyLink Edges Out Windstream for First Place

In the first two years of our “Six Degrees of Separation” analysis, there was little movement at the top of the ranks. NTELOS (Nasdaq:NTLS) edged out Shenandoah Communications (Nasdaq:SHEN) in 2008 for the victory, while Shenandoah

returned the favor in 2009, flip-flopping ranks with NTELOS. This year we crown both a new winner and a new runner up. Envelope please. And the winner of the third annual “ILEC Six Degrees of Separation” is… CenturyLink (NYSE:CTL)!

Over the past three years, CenturyLink has steadily improved its performance in our Six Degrees tests, moving up in rank from 10th place in 2008, to 4th last year, to 1st in 2010. Aided by its acquisition of Embarq, CenturyLink finished on top of the growth and return to shareholders categories in this year’s analysis. Its sample best weighted average rank of 4.48 is slightly stronger than Shenandoah’s winning rank of 4.8 a year ago. Right on CenturyLink’s heels was runner-up Windstream (Nasdaq:WIN) with a weighted average rank of 5.23. Both LECs were awarded A’s for their overall performance.

The only downside to winning: when you’re at the top, there’s no place to go but down. Just ask the 2008 and 2009 Six Degrees champs. Last year’s winner, Shenandoah, dropped twelve spots overall, while NTELOS fell nine spots. We documented Shenandoah’s fall from grace throughout this year’s analysis as its efficiency, growth and profitability metrics all deteriorated in 2010 and its stock price (and long-term performance rank) paid the price. NTELOS’ declines were also widespread, as it went from A’s to C’s in growth, financial condition and efficiency.

The upside movers were less dramatic. Otelco (Nasdaq:OTT) was the biggest gainer, thanks to its first place finish in long-term performance.  It moved up from 9th place to 3rd overall, earning an A- for its efforts. Frontier (NYSE:FTR) also jumped up six spots from a year ago, driven by an improved growth performance after it acquired 4m access lines from Verizon (NYSE:VZ).

While there was a shakeup at the top, the F students remained the same. Fairpoint (Nasdaq:FRP) finished in the basement for a third consecutive year, its average rank improving slightly only because there was one less public LEC (Iowa Telecom) compared to 2009’s sample. New Ulm Telecom (OTC:NULM) also repeated its second-to-last place finish from last year after earning a D- and an F in the most heavily weighted categories (return to shareholders and long-term performance).

In total, the bell curve produced a final grade tally of two A’s, one A-, two B+’s, one B, two B-‘s, one C+, one C, three C-‘s, two D+’s, one D, zero D-‘s, and two F’s. 


Six Degrees of Separation: ILEC Returns and Stock Prices Factored In 

CenturyLink and Otelco Top Final Two Tests

Up to this point we have analyzed and graded the public ILECs in four categories: Profitability, Growth, Financial Condition and Efficiency. Our final two tests are perhaps what shareholders and potential investors pay attention to most: Return to Shareholders and Long-Term Performance. We believe that a company’s historical stock performance is the best indication of a company’s overall performance, as the eyes of millions of investors recognize sound/weak management, company risks and growth prospects. Accordingly, Return to Shareholders and Long-Term Performance are weighted more heavily (20% and 30% of composite rank) in determining  the winner of our “Six Degrees of Separation” analysis. Let’s take a look at how the public LECs measured up in 2010.

CenturyLink (NYSE:CTL) earned top marks in Return to Shareholders, finishing on top in its second category this year (in addition to Growth). Its $8.70 in free cash flow per share was 70% higher than the next closest ILEC, and its 2011 acquisition, Qwest, also topped a pair of tests—cash return on capital investment and return to investors. Qwest’s 92% return to investors in 2010 was aided by the 15% premium CenturyLink agreed to pay over Qwest’s stock price on the day its merger was struck. Elsewhere, second place AT&T (NYSE:T) generated the most in terms of (diluted) earnings per share of the public LECs in 2010.     

There were no surprises at the bottom of the ranks.  Burdened by its bankruptcy, Fairpoint’s (Nasdaq:FRP) return to shareholders was graded worst of all ILECs for the second year in a row. Its bottom of the barrel free cash flow and diluted earnings per share were both negative, while only Warwick Valley Telephone (Nasdaq:WWVY) generated less cash return on capital investments. With its third F in five categories, Fairpoint essentially sealed up last place overall with its poor performance in Return to Shareholders.

The only significant movement in the category was courtesy of Cincinnati Bell (NYSE:CBB) which fell six spots to fourteenth overall, earning a D in the process. A lagging stock price lowered its return to investors to -19% in 2010, a year after it generated the second best return to investors  (79%) of all the public LECs.

We now move on to the final and most heavily weighted category in our Six Degrees analysis: Long-Term Performance.  This final category consists of just a single test—the growth of a $10,000 investment over a three year period.  This measure of total return includes stock price appreciation and dividends paid. 

Finishing in first place, Otelco (Nasdaq:OTT) generated the highest total return for shareholders over the past three years, turning $10k into just under $19k. The return was 30% higher than the next best long-term performer, Warwick Valley. The market rewarded Otelco’s overall management and financial performance, driving its price up 34% in 2010. Investors also looked positively on Warwick Valley’s results in 2010, bidding its stock price up 15%.

On the downside, a pair of smaller LECs were beaten up by Wall Street over the past three years. A $10k investment in New Ulm Telecom (OTC:NULM) in January 2008 had lost half of its market value through 2010. Meanwhile, Shenandoah Telecommunications (Nasdaq:SHEN)--awarded an A for its long-term performance a year ago--dropped ten spots in this year’s test. The market shaved 10% off its stock price in 2010, reflective of its declining performance that we have observed in this year’s Six Degrees tests.

It has been a tale of two stories for Shenandoah the past two years.  In 2009, we crowned it the overall winner of “Six Degrees of Separation” as it tested well across the board in efficiency, financial condition, growth, and profitability measures. The market took notice of its strong performance, and kept its stock price high. On the other hand, in 2010, Shenandoah’s growth slowed, its operations became less profitable and less efficient, and investors found it less attractive.

With Shenandoah’s struggles, it’s safe to say that we will be crowning a new winner in the “ILEC Six Degrees of Separation” this year. The ballots have all been cast and just need to be counted.  Tune in tomorrow to get the results.