One of the leading integrated telecommunications service providers, CenturyLink Inc. (CTL) will accept $54 million from the Federal Communications Commission's (FCC) Connect America Fund (CAF) this year. This will fund broadband services in suburban households of high-cost regions.
This $54 million is the second tranche of funds that the company is being granted under FCC’s CAF 1 phase. CenturyLink will also inject in an equal amount of its own capital to support the FCC cause. Notably, three months back, CenturyLink was announced eligible to receive a minimum of $90 million from FCC’s Connect America Fund this year.
A combined value of more than $108 million will be invested by CenturyLink in the next three years to deploy high-speed Internet to nearly 92,000 rural customers. The company aims to attain a download speed of 4Mbps and an upload speed of 1Mbps in 33 of the 37 states where it offers residential Internet services.
Financial grants from CAF represent an important source of CenturyLink’s network access revenues. The company has already received $35 million in CAF phase I, which was utilized to deploy broadband service to 45,000 households in underserved areas. Through CAF phase 1, CenturyLink will deploy high-speed Internet to nearly 140, 000 rural homes.
Although CenturyLink has been receiving CAF grants, large incumbent operators like AT&T Inc. (T) and Verizon Communications Inc. (VZ) have thus far restrained itself from accepting FCC’s aid. The carriers have rejected the help based on strict limitation on the utilization of funds and adherence to strict reporting requirements. However, AT&T has agreed to accept CAF funds after FCC relaxed some of the prior norms.
The company is investing in fiber-to-the-tower (FTTT) expansion, with 1,000fiber builds already completed in the second quarter. The company remains on track to build 4,000 to 5,000 fiber towers in 2013. We believe that the CAF funds will help in the company’s FTTT expansion, which will enable the company to offer competitive broadband products and services. This in turn could allow the company to reduce Internet customer churn.
CenturyLink, which operates with other market players like Leap Wireless International Inc. (LEAP), currently carries a Zacks Rank #3 (Hold).
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