CenturyLink drops 37K broadband customers as it tightens credit policies

CenturyLink's (NYSE: CTL) efforts to tighten the credit and collection policy on its broadband subscriber base may eventually enable it to reduce churn, but in the near-term it resulted in the telco losing about 37,000 customers.

The service provider ended the third-quarter with nearly 6.1 million broadband customers.

Speaking to investors during the third-quarter earnings call, Stewart Ewing, CFO and EVP of CenturyLink, said that despite the initial subscriber loss the new policy gives it a foundation to grow its broadband base next year.

He said that the new credit policy and collections were the reason behind 17,000 of the total 37,000 subscriber decline it saw in the quarter.

"As a result of these actions, high-speed Internet and Prism TV net subscriber growth was negatively impacted," Ewing said, according a Seeking Alpha transcript. "However, these adjustments had little impact on revenue and should actually help improve our broadband growth in 2016, due to lower churn."

Its broadband growth strategy for 2016 will incorporate three main elements: expanding the penetration of GPON-based FTTH, offering higher speed copper-based services, and launching a line of over the top video services.

GPON continued to be a large driver of growth as it ended the quarter with more than 780,000 households and 16 markets that are now fiber-to-the-premises (FTTP) capable. It is also trialing a 200 Mbps service over its existing copper network in a number of markets and based on the results of those trials it will consider rolling it out into a broader part of its wireline footprint.

"We are going to focus on really trying to penetrate the areas where we have rolled out GPON," said Glen Post, CEO and chairman of CenturyLink. "We're also looking at other ways to improve our speeds -- continually improve our speeds over copper."

While it continues to see Prism IPTV growth, CenturyLink hopes to attract more of the millennial generation by offering a two-pronged over the top video program.

The first offering will be a skinny bundle that includes local, linear and premium services. The provider said that this product will incorporate upsell opportunities for a kids' package and an entertainment package. In the markets where it has franchise agreements for its Prism IPTV service, CenturyLink will make the same content it offers today available in an over-the-top content catalog as well as aggregating other video services which are used by our customers today.

"I think that we'll be able to remain competitive and hopefully become more competitive, actually, than we are today," Post said. "We're also working on an over-the-top offering that we'll be trialing in the third quarter that we hope to roll out on a trial basis in two or three markets, latter part of this year and early next year, that we think will help us with the Millennials and be a lower-cost option from the standpoint of the way we roll it out than our Prism product is today."

Here's a breakdown of the company's key metrics:

Consumer: Due to gains in its broadband Internet and Prism IPTV customer base, total consumer segment revenues were $1.51 billion for third quarter 2015, up 1.2 percent year-over-year from the third quarter 2014.

Within the consumer segment, strategic revenues were $763 million, up 7.2 percent year-over-year. CenturyLink added nearly 11,300 Prism TV customers during third quarter 2015 and over 360,000 addressable homes added in new and existing service areas, ending the quarter with nearly 3.0 million addressable homes.

"We continue to see good results in those markets where we have deployed higher broadband speeds and Prism TV services," Post said. "Specifically in our markets with fiber to the prem, including GPON, the take rates continue to be strong and are exceeding our expectations."

Business/Wholesale: Similar to the Consumer division, CenturyLink's Business segment continued to see growth in high-bandwidth data services, an element that grew nearly 9 percent year-over-year.

However, strategic revenues declined 2.1 percent year-over-year to $1.56 billion due to what it said were continued declines in low-bandwidth data and hosting services. Overall segment revenues were $2.64 billion, a decrease of 4.9 percent from third quarter 2014, due primarily to lower low-bandwidth data services, legacy revenues and data integration revenues, which were partially offset by growth in high-bandwidth data services revenues. Low-bandwidth data services revenue declined 11.8 percent year-over-year due to continued network grooming and migration to fiber-based services.

Finally, business segment margin declined to 41.5 percent from 44.1 percent a year ago primarily due to the continued decline in legacy and low-bandwidth data services revenue.

The service provider is also looking at various opportunities for its data center and colocation business operations. While it did not provide specifics, CenturyLink is considering a number of options for this segment, including a partnership or joint venture, a sale of all or a portion of the data centers, as well as keeping some or all of these assets and operations as part of CenturyLink's portfolio.

"We expect colocation services to remain part of our service offerings, but we do not believe ownership of the physical data center assets is necessary to effectively deliver those services," said Post.

CenturyLink is not the only telco looking to rework its data center business strategy. Windstream recently announced that it would sell off its data center business after spending a number of years expanding it to a third-party, for example.

Overall core revenues were approximately $4 billion in third quarter 2015.

Looking toward the fourth quarter, CenturyLink has forecast operating revenues to be between $4.4 to $4.5 billion and core revenues of $3.97 to $4.02 billion.

Third quarter 2015 adjusted diluted earnings per share (EPS) was 70 cents compared to 63 cents in the same period a year ago due to the higher Adjusted Net Income and the impact of the lower number of shares outstanding due to share repurchases since third quarter 2014.

For more:
- see the earnings release
- see the earnings transcript

Special report: Tracking wireline telecom earnings in Q3 2015

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