CenturyLink CEO: Fiber build and digital transformation create a 'virtuous cycle'

CenturyLink CEO Jeff Storey said his company's transformation plan for last year and the continued deployment of fiber have paid off for the telco.

During Wednesday's fourth quarter and full year earnings call, Storey said CenturyLink expanded its addressable market by pushing fiber to an additional 18,000 buildings, bringing its total for 2019 to around 170,000 fiber-fed on-net locations.

"Our strategy is fairly straightforward and our 2019 capital investment program focused on three primary areas: enhancing our product capabilities, to meet the changing technology needs of our customers and the digital interactions they seek; increasing the size of our addressable market, by continually expanding our fiber footprint; and improving our customer experience and reducing our cost to operate, through simplification and automation," Storey said, according to the Seeking Alpha transcript.

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Storey said Century is making it easier for its consumer customers to access its network by standardizing the company's product set and enabling a digital environment.

"That digital environment allows customers to immediately initiate service using automated and seamless provisioning processes," Storey said. "In turn, this lowers our cost to operate and improves our customer experience. This type of transformation creates a virtuous cycle. We optimize our capabilities to reduce costs, which drives a better customer experience and happy customers buy more and churn less."

CenturyLink entered 2019 with blueprint in place to focus less on areas that weren't productive, such as consumer video and OTT, by instead drawing a bead on core areas such as its fiber built out.

"We've prioritized fiber deployment for consumers over previous investments in copper-based technologies like bonding and vectoring," Storey said. "We now have enabled more than two million fiber households, a number we expect to continue to grow. We are slowly eliminating our linear video products and shut down initiatives to create a streaming video product. We continue to groom our enterprise customer base to identify and exit low margin contracts.

"We see great demand for our fiber-based services. Part of the reason that led us to invest in the ultra-low loss (fiber) overbuild is demand from hyperscalers and others who need really, really high capacities over the fiber, and where traditional fibers just couldn't do it as efficiently as the new low loss fiber. We continue to work with them and to partner within them in network builds, but also providing them solutions."

CenturyLink's fourth quarter results were largely in line with analysts' expectations. Net income for the quarter that ended Dec. 31 was $223 million, or 21 cents per share. For the year, CenturyLink posted a net loss of $5,269 billion, or $4.92 per share compared to a net loss of $1.733 billion, or 37 cents a share, in 2018.

The small and medium segment posted a decrease of 3.3% year-over-year to $731 million.

"We continue to see mixed results from this segment, as revenue pressures from legacy services is far more than offsetting growth from new services and our expandable addressable market," Storey said. "However, we believe we can ultimately grow this segment and are investing in the products and platforms that are aligned to the unique needs of these customers."

The wholesale segment was down 7.4% year-over-year to $994 million due to "ongoing industry consolidation and technology evolution," according to Storey.

"However, technology evolution also gives us opportunities and we are working closely with our wholesale customers to support their 5G initiatives as our expanding fiber footprint is a natural match for their needs," Storey said.

Partially due to a ramp-down in its linear pay TV offering, consumer revenue was down to $1.39 billion from $1.47 billion in the same quarter a year ago. Storey said last year that CenturyLink would evaluate selling off its consumer business and assets. On Wednesday's call, he said there were no sacred cows when it comes to selling off some or part of its consumer assets.

While CenturyLink will still invest in its consumer business, such as pushing fiber-to-the-home, it has "engaged with parties that are interested in exploring the purchase of all or parts of the business," according to Storey

Helped by a government contract with NASA, enterprise revenue was flat year-over-year at $1.6 billion

"Our outlook for the wholesale segment is largely unchanged and we continue to expect revenue to decline, primarily driven by ongoing industry consolidation and technology evolution," Storey said. "However, technology evolution also gives us opportunities and we are working closely with our wholesale customers to support their 5G initiatives as our expanding fiber footprint is a natural match for their needs."

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Storey said CenturyLink will continue to wrap up its Connect America Fund (CAF) II build out. and that he liked what he has seen so far for the Federal Communications Commission's Rural Digital Opportunity Fund (RDOF) for faster broadband speeds in rural areas.

Going forward, CenturyLink expects adjusted EBITDA of $9 billion to $9.2 billion for 2020. Free cash flow is expected to fall in the range of $3.1 billion to $3.4 billion. Storey said CenturyLink's 2020 priorities look a lot like its 2019 priorities.

"As we look to 2020 and beyond, we expect our revenue trajectory to continue to improve," he said. "While we do not expect these improvements to be linear, we do expect better performance over the course of the year and we will remain disciplined in our pursuit of profitable revenue."