CenturyLink Consumer Spinoff Decision Could Hinge on Frontier's Plans

If CenturyLink decides to spin off its consumer business, the financial benefit wouldn’t amount to much, according to a research note by MoffettNathanson.

Last month, CenturyLink said it’s conducting a strategic review of its consumer business, and selling the business or spinning it off haven’t been ruled out as options. Jeff Storey, CenturyLink’s CEO, discussed the review process during its first-quarter 2019 earnings call.

CenturyLink is examining assets like its consumer business, and has “engaged advisers to assist us in that review,” Storey said.

CenturyLink’s Jeff Storey

“Let me be clear; we’re early in what I expect to be a lengthy and complex process,” he said. “During our review, we will not modify our normal operations or our investment patterns. I can’t predict the outcome or the timing of this work or if any transactions will come from it at all. Our focus, though, is value maximization for shareholders.”

According to the research note obtained by Telecompetitor, MoffettNathanson sees interest in spinning off CenturyLink’s consumer business driven, in part, by Frontier Communications’ plans to sell its local service business in four states for a lucrative price. The researchers estimate, however, that Frontier’s footprint in the four states is more fiber-enabled compared to CenturyLink’s, suggesting that CenturyLink wouldn’t be able to command the same price.

Spinning off CenturyLink’s consumer business also would involve dividing a network and other operations that serve both the consumer and business sides of the company. This would “simplistically imply roughly $300-$600 million in value destruction from separating the businesses,” according to MoffettNathanson.

Another concern is whether it would receive necessary approvals from state public utility commissions.

The analysts also said CenturyLink’s opportunity to provide connectivity for small cells is limited because small cells will be deployed only in densely populated areas and CenturyLink is the incumbent local carrier in just two of the nation’s 50 most densely populated cities.

However, MoffettNathanson said the FCC’s plans for a new program to expand access to voice and broadband services for areas where they are unavailable is a positive as CenturyLink was one of the largest recipients of Connect America Fund (CAF) funding.