CenturyLink Earnings Now Driven by Business Segment

Even before consolidating of Level 3 financials, CenturyLink’s third-quarter earnings report shows why the company, going forward, is likely to be driven by its business customer segment, not the consumer fixed line business.

Also, though its legacy is as rural telco--similar in heritage to Windstream and Frontier Communications--CenturyLink now is different. It has global operations and primarily earns its revenue from business customers, not consumers, though it has a big consumer markets presence.

CenturyLink’s big miss on revenue and earnings was driven by underperformance in its enterprise segment--not the consumer business. Overall, revenues dropped eight percent.

Keep in mind that CenturyLink earns 75 percent of its revenue from business customers. Enterprise revenue was down 11.2 percent, while consumer segment revenues were off 5.8 percent.

There were, to be sure, some one-time items. Enterprise revenue dropped because CenturyLink sold its data center asset sale. Taking out the impact of the asset disposition, enterprise revenue actually grew four percent (strategic services) to 5.5 percent (bandwidth services).

Consumer segment revenues declined primarily due to voice revenues and lower video revenues due to the restructuring of a satellite video contract.

Neither enterprise nor consumer segments declines are helpful, but the enterprise segment is key for CenturyLink, as it represents 75 percent of total revenue.

“CenturyLink's results for the quarter were below our expectations due primarily to lower-than-anticipated growth in enterprise revenues, said Glen Post, CenturyLink CEO.

“We have a great Consumer business that's very important to us, but we are not a primarily consumer-focused company,” said Jeff Storey, CenturyLink COO. “Approximately 25 percent of our revenue comes from consumers. 75 percent of our revenue comes directly from enterprises or through the wholesale customers we support.”

In the third quarter, CenturyLink  came in at approximately $65 million below internal expectations for enterprise revenue,  primarily due to a miss of about $35 million in customer premises equipment revenue.

CenturyLink generated about $20 million less growth in high-bandwidth data services and

$10 million of lower legacy revenues, primarily lower long distance and private line revenues.