On Oct 13, Zacks Investment Research upgraded leading local exchange carrier CenturyLink Inc. CTL to a Zacks Rank #1 (Strong Buy).
Over the last few years, CenturyLink has been witnessing a lower rate of revenue decline. In 2014, the company’s core revenue trend recorded a narrower decline of 0.6% compared to 1.3% annual decline in 2013. In 2015, the company expects this trend to continue, buoyed by strategic revenues, improvement in broadband and Prism TV sales as well as high bandwidth data and hosting services.
Meanwhile, the company recently accepted $3 billion in FCC Connect America Fund II (CAFII) subsidy over a period of six years to provide rural broadband service to 1.2 million households and businesses in 33 states. The company will provide high-speed Internet services of at least 10 Mbps download and 1 Mbps upload facility.
Moreover, the management aims to cover 40% of total targeted customers by the end of 2017 and achieve 100% coverage by end-2020. At this juncture, we believe deployment of high-speed Internet services in the underserved rural areas, by making optimal use of government subsidy, may help the company strengthen its financial position, going forward.
The company is investing in fiber-to-the-tower (FTTT) expansion and has expanded its fiber-based backhaul services to over 21,000 towers at the end of 2014. Further, the company expects its Managed Office and Managed Enterprise Solutions to continue gaining traction and drive revenue growth on the back of increasing demands from small and large business customers.
Over the last three years, CenturyLink has been trying all means to establish itself as a global leader in cloud infrastructure and hosted IT solutions arena designed for enterprise customers. In 2015, CenturyLink expects to build infrastructure to meet the growing need of its wholesale customers for cloud hosting and collocation services.
In Jun 2015, CenturyLink announced the availability of 1 Gbps (gigabit per second) fiber-to-the-premises (FTTP) connections in 17 states to provide symmetrical gigabit services to nearly 490,000 small and mid-sized (SMB) businesses. The SMB segment represents a massive growth opportunity for the telecom industry. Significant improvement in business data and video traffic is expected to act as a growth catalyst for the industry.
However, CenturyLink’s core local phone business has slowed down significantly. This is primarily due to the substitution of traditional wireline telephone services by wireless carriers like Verizon Communication Inc. VZ and AT&T Inc. T. In addition, the company also faces intense competition from cable TV operators like Frontier Communications Corp. FTR which aggressively offer traditional voice, Internet TV and cloud services over their networks. Thus, the company is focused on bringing improved operating efficiencies through a number of methods including network simplification and rationalization.
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