CenturyTel (CTL) appears to be in no rush to integrate Qwest Communications International Inc. (Q), a strategy that will serve the companies well when it comes to back-office systems. In other words, the combination of the two LECs shouldn’t turn into another Verizon-FairPoint debacle.
On April 22, CenturyTel – which operates as CenturyLink thanks to the buyout of Embarq that closed last year – said it will purchase Qwest in a $10.6 billion, all-stock, tax-free transaction. The deal amounts to $22.4 billion once CenturyTel assumes Qwest’s net debt. CenturyLink shareholders will own about 50.5 percent of the company while Qwest investors will hold the remaining 49.5 percent.
Together the providers will reach 37 states with in-house broadband and wireline services, and outsourced video and wireless products. CenturyTel also predicts it will run a lean operation; it plans to save $575 million in three to five years by cutting overhead costs, and duplicate jobs and systems, and another $50 million by chopping capital expenditures. Perhaps most of all, CenturyTel will become the third-largest LEC serving business markets, according to research firm ATLANTIC-ACM, holding a 7.6-percent share in the United States, behind AT&T Inc. (T) and Verizon Communications Inc. (VZ) To that point, sources say, as CenturyTel grows, it can’t rush to use the same systems and processes, or it will face trouble.
Yet, unlike Verizon and FairPoint, “Qwest and CenturyTel ... have the benefit of taking as much time as they need,” said Brian Washburn, research director of network services at Current Analysis. FairPoint didn’t have that luxury. After it bought Verizon’s 1.6 million landlines in New England in 2007, the carrier was pressured to transition the back-office quickly because Verizon wanted to be done with the assets. The problem was, FairPoint had never worked with Bell platforms, which are “esoteric and difficult,” Washburn said. And that’s why all hell broke loose.
This transaction, which creates a “super-LEC” worth more than $30 billion in combined revenue, will take at least a year to close. During that time, CenturyTel will keep absorbing Embarq, the Sprint Nextel Corp.-subsidiary it bought last year; analysts expect that CenturyTel will have Embarq under control by the time the Qwest merger closes and digestion can begin anew.
Yes, Qwest, like Verizon, relies on Bell systems. The difference, said Washburn, CenturyTel doesn’t need to change anything. “They can if they want to, but if things start to go wrong ... there’s no time pressure.”
