CenturyLink Could be a Sleeper

When a typical industry observer thought of CenturyLink over the past several years, the following aspects probably came to mind: only a handful of major metropolitan areas that are a vast distance apart from each other, a large “independent telco” mindset, longer metro/regional networks that can require costlier equipment outlays, lots of rural customers in which it is difficult to provide broadband services, and not necessarily the most innovative service provider in the world. Without question, the reported merger with Level 3 would significantly transform the company. Yet, even before this story about the transaction, it seems now, notably in hindsight, there were significant signs that CenturyLink has been setting the table to be a different type of operator compared to how it has been positioned historically, as well as to possibly be highly differentiated from other carriers around the world.

For instance, CenturyLink was evidently in serious discussions with Verizon about potentially purchasing its precious fiber-to-the-enterprise assets on the east coast. Also, unlike AT&T, which mainly for operational reasons has deployed 40G extensively, CenturyLink totally leapfrogged to 100G in its network. Three other examples include the following:

1. In contrast to Verizon, CenturyLink is apparently not looking to totally abandon its impressive data center operation.

2. With what seems like half of the attention going to Verizon over metro 100G (although the current market sizing and projections by many industry analysts for this equipment continues to be ludicrously excessive), it would not be surprising if CenturyLink winds up being the largest buyer of ROADMs for this application in the US because some of its use, particularly in future years, will be dependent on penetration into the cloud services market (and it remains to be seen which of the “Big Three” incumbents in the US will ultimately be the most aggressive in this space).

3. At least internally, and in contrast to AT&T, at a minimum, externally, CenturyLink has a very realistic view on the current (and likely long-term) limitations of SDN, especially relating to brownfield optical networks.

The merging of CenturyLink with Level 3 is probably beneficial in somewhat building another large extension on a Denver/“Rocky Mountain” culture, if you will, on top of the prior Level3-tw telecom combination. It will also be CenturyLink’s means of buying an ISP, as Verizon has done with AOL/Yahoo, and AT&T is trying to effectively do with its purchase of Time Warner, as we pointed out in one of our most recent fibeReality LinkedIn page posts.

The timing of the leak of this deal was brilliant in that it will appear to be quite reasonable in light of the whopping, highly complex AT&T-Time Warner proposed merger. Perhaps CenturyLink and Level 3 can come together without any federal government agency or entity looking to extort concessions, which ought to be the case anyway.

We also take exception with the following negative connotation in a Light Reading article: “The [CenturyLink-Level 3] deal would create a bit of an odd duck — a company that caters largely to enterprise and government customers that also has a big but far from dominant residential business.” We are not aware of any service provider generating gangbuster margins serving consumers with landline infrastructure. Also, while catering to large enterprises is hardly as lucrative as in the past, there is always the potential for that to change, such as if the industry ever gets to meaningful bandwidth-on-demand offerings. While serving the government can be a mixed blessing, it is where a lot money ends up with the willingness (unfortunately for citizens) to go even into severer levels of debt to pay for services. In short, there are lots of operators, which would individually love to be such “an odd duck.”

Please consider our latest report, Clash of Optical Component Vendors & Technologies in Data Center Networks. For our more frequent updates, please click here.

[written by Mark Lutkowitz]