CenturyLink reported impressive third-quarter financial numbers buoyed by strong demand. We believe strength in products such as high-speed Internet, high bandwidth data services, Prism TV, and managed hosting services remain key growth drivers for the company. In December, the company acquired Cognilytics and DataGardens. In addition, a realigned business structure is likely to reap beneficial results going forward. On the downside, deteriorating legacy voice and access revenues owing 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 company. Meanwhile, the company's shares surged more than 25% in the last one year. Considering these factors, we maintain our Neutral recommendation on CenturyLink.
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 services.
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 in 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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