We maintain our Neutral recommendation on CenturyLink. The
company's top line surpassed the Zacks Consensus estimate and
increased year over year in the second quarter of 2014. While
earnings beat expectations, they significantly deteriorated from
the year-ago quarter figure. We believe strength in products such
as high-speed Internet, high bandwidth data services, Prism TV, and
managed hosting services remain key growth drivers at CenturyLink.
In addition, a realigned business structure is likely to reap
beneficial results going forward. On the downside, 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 facing the
Based in Monroe, LA, CenturyLink Inc. (CTL) is the third largest
landline operator in the U.S. 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
The company acquired Embarq Corporation in Jul 2009,
Denver-based Qwest Communication in Apr 2011 and Savvis Inc. in Jul
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)
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
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 in four segments Consumer, Business, Wholesale and Data
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
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.
CenturyLink Inc. (CTL): Read the Full Research
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