CenturyLink Faces a "Two Types of Network" Problem

CenturyLink has an interesting problem. It earns most of its money from enterprise and business customers, but it has a consumer communications business that covers the most-rural territory of all the entities formerly known as “Baby Bells.”

In fact, CenturyLink now earns as much as 88 percent of revenues from business customers, and nearly all its profit.

Prior to the Level 3 merger, CenturyLink claimed enterprise, small business and wholesale  revenue would amount to 76 percent of total revenue.

source: CenturyLink

CenturyLink might have as many as 17 million access lines in service. Since it does not report total access lines anymore, it is difficult to say with precision what profit margin contribution now is made by the consumer business, except to note that internet access accounts for about 46 percent of consumer segment revenue, with consumer voice contributing about 41 percent of total revenue.  

So what is interesting is that CenturyLink operates as a business services specialist--akin to a competitive local exchange carrier, metro fiber provider or long-haul capacity provider--but still also operates a huge network of relatively low density consumer access lines.

That means CenturyLink likely makes most of its profits from the business segment, with higher profit margins, compared to the consumer segment. That is not a terribly unusual state of affairs for a tier-one fixed network service provider in the U.S. market with universal service obligations.

More than most tier-one service providers, CenturyLink would really benefit from lower-cost platforms to supply high speed internet access services, without having to install fiber to home facilities in rural areas.

Unlike AT&T and Verizon, CenturyLink does not own mobile network assets that will help, in that regard. On the other hand, perhaps CenturyLink can provide small cell backhaul service to those and other firms.

But CenturyLink faces severe capital constraints. It has grown by acquisition, which means high debt loads. CenturyLink gross revenue also is declining, in both business and consumer segments, and has to pay out a high dividend.

One might argue that among the big strategic problems CenturyLink faces is that it is an amalgam of two different types of businesses: a largely-rural fixed network business using one type of network and a separate enterprise services business that uses different facilities.

source: FCC, CenturyLink