CenturyLink Inc. (CTL): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
We maintain our Neutral recommendation on CenturyLink. The company's renewed business structure is likely to reap results going forward. Broadband expansion, faster fiber builds, better cloud computing and hosting solutions, and penetration of Prism TV into new markets are also likely to drive profitability. Furthermore, CenturyLink's continued data center expansion and related acquisitions are expected to strengthen its foothold in the industry. However, deteriorating legacy voice and access revenues due to wireless substitution, cash flow pressure, federal regulations, labor issues and the constant need to upgrade technology are some of the major risks to the company.

Overview:

Based in Monroe, Louisiana, CenturyLink Inc. CTL is now the third largest landline operator. The company is a rural local exchange carrier (RLEC) that provides a range of communications services, including local and long distance voice, wholesale network access, high-speed Internet access, managed hosting and collocation services, other data services and video services. In certain local and regional markets, the company also provides fiber transport, competitive local exchange carrier services, security monitoring, and other communications, professional and business information services.

CenturyLink operated approximately 13 million access lines and served around 5.99 million broadband customers across 37 states, as of Dec 31, 2013.

The company acquired Embarq Corporation in Jul 2009, Denver-based Qwest Communication in Apr 2011 and Savvis Inc. in Jul 2011.

With the acquisition of Qwest and Savvis, CenturyLink revised its products and services under the following categories:

Strategic (accounted for 48% of revenue in fiscal 2013): This includes private line (including special access), broadband, MPLS (data networking technology), hosting, video, voice over Internet Protocol (VoIP) services and Verizon Wireless services.

Legacy (42%): This includes local, long-distance, switched access (including public access), integrated services digital network (ISDN) services and traditional wide area network (WAN) services.

Data Integration (3.6%): This comprises telecommunication equipment that is located on customers' premises and related professional services. These services include network management, installation and maintenance of data equipment and building of proprietary fiber-optic broadband networks for government and business customers.

Other (6.4%): Other revenue includes revenue from universal support funds (USF). These funds are used to recover portions of costs under federal and state cost recovery mechanisms and certain surcharges to customers, including billings for required contributions to several USF programs.

On Jan 3, 2013, CenturyLink announced a restructuring of its operating segments. The company combined its network services business sales and operations teams into a single unit. The company now reports four segments Consumer, Business, Wholesale and Data Hosting.

Consumer: The segment provides products and services to residential consumers across 37 states.

Business: The segment advances products and services to government, small to medium-sized businesses and enterprise customers within the U.S. as well as in certain international markets.

Wholesale: The segment extends products and services to other domestic and international communications providers.

Data Hosting: The segment provides colocation, managed hosting, cloud services and hosting-related network services to businesses of all sizes.

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