CenturyTel (CTL) doesn’t plan to close its $10.6 billion takeover of Qwest Communications International Inc. (Q) for about another year – and that represents months during which CLECs can go after Qwest’s enterprise customers.
“There’s going to be a lot of chaos in the marketplace,” said Donna Jaegers, a senior analyst at brokerage D.A. Davidson & Co..
Chaos equals opportunity, so competitive service providers like tw telecom (TWTC), PAETEC (PAET), Cbeyond (CBEY), Comcast (CMCSA) and privately held Integra Telecom should make sure they’re the “beneficiaries in the near-term” of that confusion, Jaegers added.
CenturyTel – which operates as CenturyLink thanks to the buyout of Embarq that closed last year – said it will purchase Qwest in an all-stock transaction totaling $22.4 billion, counting Qwest’s 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. Most importantly, 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). CenturyTel CEO Glen Post expects to see 25 percent, instead of the current 11 percent, of the company's revenue come from large businesses.
But while Qwest has years of experience serving enterprise customers, it's new territory for CenturyTel, which grew up as a rural provider of local phone service in Louisiana.
“It’s going to be a challenge for them because CenturyTel has not been focused that intently on the business customer,” Jaegers said. “Qwest brags about their growth in that area being flat in a recession ... but they should have been showing growth like the CLECs.”
Analysts like Brian Washburn, research director of network services at Current Analysis, believe that the combined company has a good chance of maintaining its enterprise business despite the challenges. “I don’t think this is the sort of thing that will drive enterprises away from Qwest,” Washburn said. “Qwest is still committed to the optical network upgrade and doing business as usual so the merger is unlikely to affect enterprise services.”
'Just Don't Screw It Up'
tw telecom, Integra and Comcast all declined to comment on the CenturyTel-Qwest tie-up; Cbeyond didn’t respond. And Mary O’Connell, PAETEC’s general counsel, would only say the CLEC will continue to push for “a regulatory framework that encourages competition, including the provision of reasonably priced last-mile access to end users.
