The third largest telecommunication company in the U.S., CenturyLink Inc. (CTL - Analyst Report) received $35 million from the Federal Communications Commission’s (FCC) Connect America Fund (CAF) for deploying broadband services in rural areas. With the given fund the company expects to serve nearly 45,000 households.
The company has also been granted funds worth $1.9 million for providing broadband services to 6,300 unserved households in Montana.
In 2011, the FCC reformed its USF (universal service fund) and intercarrier compensation (fees that carriers pay each other when they connect telephone calls) rules. The FCC highlighted its efforts to expand high-speed Internet services to rural areas over the next six years (2012–2018).
Based on these reforms the FCC introduced CAF that involves a six-year transfer process of funds from USF, eventually, ending USF’s High-Cost program by 2018.
Under the new CAF, the company was eligible for receiving around $90 million in Phase I funding, which was curtailed due to limitations over using phase 1 fund. Although, the company expects these limitations to restrict deployments across several areas under its plan, it also aims to focus on high cost regions that lack affordable Internet services.
We believe CenturyLink will continue to invest strategically in the primary four levers over the next few years. This would serve as major catalysts for revenue growth. These drivers include broadband expansion and enhancement, fiber-to-the-tower (FTTT) initiatives, managed hosting and cloud services, and IPTV offering known as Prism TV.
The company is on track with its target of spreading advanced broadband network services such as fiber-to-the-node (FTTN) access to 7.1 million additional homes by the end of the year. Currently, the company has covered 6.3 million units under its FTTN infrastructure.
Further, the company created a new offering for higher-speed Ethernet, bundled with voice over IP and IT services designed exclusively for SMEs. We believe that the advanced network build-out will enable the company to offer competitive broadband products and services.
With the Savvis acquisition, CenturyLink’s marked its entry into the cloud computing business, which is growing by leaps and bounds. The acquisition strengthened CenturyLink’s footprint in the hosting managed cloud services business to 51 data centers in North America, Europe and Asia. The company continues to expand data centers this year with a view to generate higher revenue growth in managed hosting and cloud services.
Further, CenturyLink plans to launch IPTV services in two new markets this year with more in 2013 through 2015. The company expects to spend $250 million per year for IPTV expansion over the three-year period (2012-2015).
However, intense competition from top telecom carriers like AT&T (T - Analyst Report) and Verizon Communication Inc. (VZ - Analyst Report) along with continuous loss of customers and lower minute’s usage will act as headwinds going forward.
We maintain our long-term Neutral recommendation on CenturyLink Inc. The stock also has a Zacks #2 Rank, implying a short-term Buy rating.