Will CenturyLink Spin Off Consumer Business? Can it?

It should not be surprising that CenturyLink, which now generates perhaps 75 percent of its revenue from enterprise services, is exploring possible divestment of its consumer network operations.

The company now is a mashup of Level 3 enterprise services and the legacy consumer telecom services business. In essence, CenturyLink is too separate assets: the Level 3 global enterprise business and the sprawling U.S. local telecom business built on former Qwest and CenturyLink assets.

The problem is that many of the CenturyLink networks are rural-weighted, though the company serves a number of smaller “tier-one” cities such as Denver, Salt Lake City, Seattle, Las Vegas, Portland, Des Moines, Orlando, Phoenix and Minneapolis, for example).

“As I briefly mentioned on our fourth quarter call, we've been open to looking at assets like our consumer business,” said CEO Jeff Storey. “We have now engaged advisors to assist us in that review.”

source: S&P Global Intelligence

The issue for CenturyLink is what to do with the legacy telco assets, which are not driving company growth, and are slowly shrinking.

Over time, more of the value of fixed networks becomes its role as a backhaul mechanism for small cells, especially as cable TV operator emerge as the leaders in serving consumer customers.

But the value of fixed networks to support dense mobile networks is mostly an opportunity in the larger cities with lots of business activity and higher populations, or in the downtown cores, not so true for less-dense parts of the service territory.

In fact, it seems ever more true that the business value of a telco fixed network is mobile backhaul (part of the enterprise opportunity for any fixed network operator). If more of the revenue appears likely to be generated by enterprise services, that might call into question the value of fixed network assets serving lower-density consumer locations.

With telco market share in internet access relatively low, the amount of stranded assets has gotten to be a significant problem. The issue for CenturyLink is identifying both potential buyers with lots of capital, and a business model that calls for harvesting revenue from a declining consumer business.