Business• Integrated Communications company• Provide a broad array of communications services including voice, internet, data and video service – Fiber transport – Wholesale communications services – Competitive local exchange carrier service – Security monitoring – Other communications, professional and business information services• 2010: 4th largest local exchange telephone company
Services• Voice: fixed monthly charge – Local calling service – Enhanced voice services – Long distance service – Anticipate 7-7.5% access line loss• Data: monthly recurring charges – Broadband High-speed Internet access – Business data transmission services • Dedicated equipment for transmitting large amounts of data – Switched digital television services: 20% of lines• Network Access – Wholesale services to carriers and customers
Basic InformationMarket Cap 23.01 BilFiscal Yearend December 31Last Earnings Announcements November 2Next Earnings Announcements February 15Institutional Ownership 76.57%Insider Ownership .57%# of Analysts 24S&P Quality Ranking
Mergers & Acquisitions• Embarq Corp – July 2009 – Home phone service, high-speed Internet, wireless, and satellite TV – Wireline Voice, Cable Video & Communication Equipment• Zillion TV Corp – February 2010 – Television Broadcasting service
Mergers & Acquisitions• Qwest Communications International – April 2011 – Fiber-optic network, high-speed internet and digital home phone services – Network, data & voice for small & large businesses, government agencies & wholesale customers – Networx: largest communication services contract in world – Qwest serves 95% of Fortune 500 – Created 173,000-mile fiber network
Mergers & Acquisitions• SAVVIS Inc – July 2011 – Cloud infrastructure and hosted IT solutions for enterprises – 2,500 unique clients • 32 of the top 100 companies in the Fortune 500 – Achieve global scale as a managed hosting and colocation provider – Accelerate ability to deliver quality managed hosting and cloud capabilities to business customers – 48 data centers located in North America, Europe, and Asia – 207,000-mile fiber network nationally – 190,000 mile global access network
Management Discussion• Embarq substantially expanded size & scope – Consolidated results begin July 1, 2009 – Previous year comparisons less meaningful• Revenue declines in Voice and Network Access – Declines in access lines, intrastate access rates, minutes of use and federal support funds – Bundle & provide new services – Provide premium service to higher % of customers – Increase usage of networks – Market to new customers
Risk Factors• Continued access line losses – Competition and wireless/broadband substitution• Technological & regulatory changes increasing competition – Wireless providers, Cable television operators, VoIP & broadband providers• Network disruptions or system failures• Limited number of key suppliers and vendors• PP&E located on property owned by 3rd parties
Capital StructureQwest acquisition included $11.947 billion of long-term debt
Industry Structure• “The firm should have the financial flexibility to adapt as the telecom industry changes while maintaining its dividend. While the Qwest and Embarq deals brought exposure to more competitive markets, a significant portion of CenturyLinks service territory is rural.”
Industry Structure• "The small business segment is even more competitive among ISPs, highlighting the need for providers to develop strong marketing strategies to ensure they can retain and grow market share."
Industry Structure“The industry is highly concentrated: the 50largest companies generate about 90 percentof revenue.”Industry Depends Highly on RegulatoryDecisions — “The FCC regulates the interstateactivities of telecom providers, includingpricing and operations, while state publicutility commissions (PUCs) regulate similarmatters at the state level.” http://subscriber.hoovers.com/H/industry360/overview.html?industryId=1 577
(un?)Competitive Advantages“While CenturyLinks financial position is better than that of many peers, it still isnt great, especially considering its unfunded postretirement benefit obligations and the cash it will pay for Savvis.” Enterprise Cloud Computing: Should they be diversifying into this industry?
Summary• Rural/small market dominance• Very competitive market• Government reg. (good…)• Alpha – expansion to larger markets• Alpha – different markets• Diversification, making sure they aren’t going to be left behind
CenturyLink Inc.- Piotroski Breakdown Qualification Score1. Positive Net Income 12. Positive Cash Flow from Operations 13. Increase of Return of Assets 1(by 5 bp)4. Cash Flow from Operations > Net Income 15. Decrease in Long-Term Debt to Assets 06. Increase in Current Ratio 17. Decrease in Shares Outstanding 08. Increase in Gross Margin 19. Increase in Asset Turnover 0Total Score 6/9
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