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When Will CenturyLink’s Data Center Transaction Be Finalized?

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May. 11 2016, Updated 12:08 p.m. ET

CenturyLink’s data center transaction and other options

According to CenturyLink’s (CTL) November 2015 announcement, it has initiated a strategic review to decide on the future of its data center and collocation assets. In the company’s 1Q16 earnings conference call, Glen Post, CenturyLink’s CEO (chief executive officer) and president, gave an update on the status of that strategic review. Post said, “We’ve launched the strategic review process for our data center and colocation business last year. Our strategic review is ongoing, but we have received a strong level of interest from numerous strategic and financial parties.”

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Post also said, “We expect to start narrowing this down to a shorter list over the next few weeks, and we expect to finalize the process in late third, early fourth quarter of this year.” He added, “This strategic review could result in a sale of all, or a portion of the data centers. It could result in a partnership or joint venture, as well as possibly keeping these assets as part of CenturyLink’s portfolio.”

Some details of CenturyLink’s data center and collocation business

According to the company, collocation services contributed $155 million to strategic services revenue in 1Q16. YoY (year-over-year), this stream declined by ~0.6% during the quarter. We mentioned earlier in the series that the company’s overall revenue was ~$4.4 billion in 1Q16.

At the end of 1Q16, the wireline telecom player had 59 data centers spanning North America, Asia, and Europe, according to the company. The sellable area of these data centers was 1.6 million square feet, and the utilization rate was at 65% as of the end of the quarter.

Instead of taking direct exposure to the stocks of US telecom players, you can consider taking a diversified exposure to the space by investing in the SPDR S&P 500 ETF (SPY). SPY held a total of ~2.7% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) at the end of April 2016.

In the next part, we’ll look at CenturyLink’s value proposition in the US wireline telecom space.

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