Broadband subscriber losses
CenturyLink’s (CTL) broadband subscriber loss has been significantly higher than expected. The loss comes since the company has been refocusing on acquiring higher-value bundle customers and putting less emphasis on stand-alone broadband subscribers. In 3Q16, the company lost 40,000 high-speed Internet subscribers. As of 3Q16, the company is serving ~6.0 million broadband subscribers.
During CenturyLink’s 3Q16 earnings conference call, management attributed the fall in subscribers to its focus on better credit quality customers and higher value customers subscribing to bundled offerings. In management’s view, the latter is of particular importance since bundled offerings provide a net positive NPV (net present value) due to lower churn characteristics.
CenturyLink to acquire Level 3 Communications
CenturyLink has recently agreed to buy Level 3 Communications (LVLT) for $34.0 billion in cash and stock. The deal will create the second-largest domestic communications provider serving global enterprise customers. It will also put together highly complementary businesses and expand the combined company’s fiber presence.
The combined company is likely to be more resilient to competition. While Level 3 boasts one of the world’s largest Internet backbones, CenturyLink has been upgrading its network infrastructure to compete with AT&T (T) and Verizon (VZ). In efforts to bolster its infrastructure, CenturyLink acquired landline assets from Sprint (S) for $6.0 billion.
So the acquisition could be positive for CenturyLink since it will significantly improve its competitive position, growth profile, cost structure, and FCF (free cash flow) per share. However, CenturyLink’s biggest threat comes from cable companies such as Comcast (CMCSA) and Charter Communications (CHTR) since they managed to add the most broadband subscribers.