CenturyLink, Level 3 to Challenge Cablecos for SMBs Post Merger

CenturyLink and Level 3 Communications say they’ll be ready to compete against cable companies for SMB business when their merger is completed this fall.

Stewart Ewing, CenturyLink’s CFO, and Sunit Patel, Level 3’s executive vice president and CFO, spoke to investors during this week’s J.P. Morgan 45th Annual Technology, Media and Telecom Conference. CenturyLink’s acquisition of Level 3 is anticipated to close by Sept. 30.

Patel said CenturyLink-Level 3 will be the second-largest player in the enterprise wholesale market, and “I think we can really leverage that from multiple fronts, whether it’s brand name, the facilities footprint or several products and services.”

“In general within the enterprise market, the consumer market or the mobile market, the demand for bandwidth continues to go up,” he said. “So while you’re always navigating legacy revenue streams going down, which hasn’t changed in the last 20 years in telecom … demand keeps going up and, in general, your customers need bigger broadband connections than they did the year before that. And that combined with the movement to hybrid networking and hybrid infrastructure also I think means that connectivity becomes a part of what enterprises need and that’s beneficial for us.”{ad}

Ewing said CenturyLink is looking to regain SMB market share that Qwest had lost when the telco purchased it.

“In the areas where we are the local exchange carrier, I think there’s a tremendous opportunity there to go in and basically take some market share away from the cable companies, especially on the small and midsize customers where Qwest had lost quite a bit of market share when we bought Qwest,” he said. “So I think there’s really good opportunity there and we just need to act more as an insurgent as opposed to the incumbent.”

The combined company’s on-net building footprint will be “quite substantial and there’s no reason why it shouldn’t be able to compete against the cable companies in those buildings,” Patel said.

“And when we look at our market share in some of those buildings, they’re reasonably low and so there’s opportunity for market share gains there,” he said. “Secondly, I think that the proximity of our network to a lot of buildings is much better as a combined company, so if we leverage that…

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…right we should be able to compete quite well against the cable companies. So this combination makes (our) small and medium-sized business segment much larger and I think we should be able to more effectively compete against the cable companies.”

The average distance between buildings gets shorter under the combined company, Patel said.

“For every dollar we spend on new business, we’ll be getting more buildings connected than we were as stand-alone companies,” he said. “So from a capital perspective, we don’t expect capital intensity to change, but we certainly expect to get better return.”{ad}

Ewing said a more focused sales approach on a building-by-building basis and an on-net basis “as opposed to just selling anywhere to anyone,” is going to be the thing that will “help basically allow us to be able to grow our revenue as well as our margins.”