Thursday, May 14, 2015

What Options Does CenturyLink Have to Wring More Value Out of its Assets?

CenturyLink is in many ways a hybrid company, including a healthy base of rural telephone access assets, several access networks in metro areas of the western United States and then long haul and enterprise assets originally part of Qwest Communications.

CenturyLink is not alone. Windstream and Frontier Communications are some combination of rural telephone assets and business-focused assets.

One might argue that, in all three cases, revenue growth is driven, on a net basis, by the enterprise and small-to-medium business operations. What is not so clear is what any of the three firms can do to--or might want to do--to enable each of the constituent business segments to perform better.

Windstream has tried to wring more value out of its operations by spinning its access assets in a real estate investment trust, while separating out the operating businesses.

At CenturyLink, strategic services are growing, the legacy access business dwindling. Some creative ideas might be offered for what CenturyLink might do, some fanciful, perhaps.

The “easiest” move would be to undo the Qwest wide area network business from the local access business. The problem is that the former Qwest assets represent the growth. Even in the fixed networks segment, the rural assets arguably could be separated from the metro markets.

The issue is that value, in the business and metro markets segment of the access business, benefits from the former Qwest assets. Also, for the most part, the new gigabit high speed access business will make sense primarily in the metro markets segment of the business.

Though conceivable, it might be hard to cleave the rural assets cleanly from the geographically-isolated metro markets parts of the business, in part because negative revenue growth is virtually assured for such rural assets.

The split of former Windstream assets into a wholesale company and a retail company leasing access to the network assets is a model CenturyLink might also consider.

Some might propose more-fanciful options, such as selling some of the assets to third parties. The issue there would be how to cleanly do so.

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