CenturyLink narrows broadband losses in Q4, sets new capital spending strategy

CenturyLink may have not completely recovered from the broadband declines that have plagued the telco in recent quarters, but it narrowed subscriber losses to a more manageable number in the fourth quarter with an eye toward new growth, losing only 5,500 customers to end the period with a total of 5.95 million broadband customers.

This is an improvement over previous quarters. In the second and third quarter, CenturyLink lost 66,000 and 40,000, respectively.

Glen Post, CEO and chairman of CenturyLink, told investors during the fourth-quarter earnings call that the telco was turning a corner on subscriber trends.

“While we didn't hit our broadband unit target for the full year, we did see significantly improving trends in that business as the year progressed,” Post said, according to a Seeking Alpha transcript.

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Post said that the telco expects broadband subscriber additions to pick up throughout the year by improving the customer experience and attracting higher value customers that bundle broadband with voice and video services.

“Consumer broadband additions were slightly positive for the fourth quarter and showed a 22,000-unit improvement compared to the fourth quarter of 2015,” Post said. “This is a positive trend and we are encouraged that it appears to be carrying over into early 2017.”

Reducing churn

As it looks to further improve its broadband metrics, CenturyLink is working on reducing its overall churn rate. Increasing available speeds to existing customers is CenturyLink’s first priority to reduce churn and make customers stickier. The service provider has been seeing greater demand for 40 Mbps speeds.

“We're seeing partially the results of the build-out of greater capacity and greater speeds in the network and that's starting to pay off,” Post said. “Most of those customers in the 40 megabits range is where we're seeing the real high take rates for our service.”

At the same time, the service provider has implemented new mitigation programs to reduce churn and improve the overall broadband customer experience.   

“We're working on reducing our churn rate,” Post said. “We have mitigation programs in place that based on the trends we've seen in the last couple quarters, we think we're going to be able to show an improvement from a customer standpoint.”

Realigning capital

The completion of broadband expansion goals could face a slight impact as the telco realigns its capital spending plans. For 2017, CenturyLink reduced its expected capital spend to $2.6 billion. The service provider could also reduce the percentage of customers it will enable with 40 and 100 Mbps.

Previously, CenturyLink set a goal to have 10.5 million, or over 85% of addressable broadband-enabled units, at 40 Mbps or higher speeds in its top 25 markets by 2018. Within that time frame, the telco said it will have 7 million, or over 55% of addressable broadband-enabled units, at 100 Mbps or higher.

“The impact could be in our top 25 markets where we said we would have over 90% of our households and business having 40 megabits capabilities,” Post said. “That could go down to maybe 86%-87%. If you look at 100 megabits, we anticipate over 70% and that could probably be at 67%-68%.”

Post said that “we would make that up in 2020 if we didn't hit those targets.”

Here’s a breakdown of CenturyLink’s key metrics:

Business: Business revenues were $2.55 billion, down 4.1% from the fourth quarter of 2015, primarily due to a decline in legacy revenues, which was partially offset by 3% growth in high-bandwidth data revenues. Strategic revenues were $1.23 billion in the quarter, up 1.1% year-over-year from the fourth quarter of 2015.

Consumer: Consumer segment revenues were $1.45 billion, a decrease of 4.3% from the fourth quarter of 2015, a factor CenturyLink attributes to a decline in legacy voice revenues, which was partially offset by growth in Prism TV revenues. Strategic revenues were $784 million in the quarter, up 1.4% over the fourth quarter of 2015.

Financials: Fourth-quarter 2016 operating revenues were $4.29 billion compared to $4.48 billion in the fourth quarter of 2015. CenturyLink attributed the lower revenue to declines in legacy voice and low-bandwidth data services revenues, which were partially offset by growth in strategic revenues.

Net income and diluted earnings per share were $42 million and 8 cents, respectively, for fourth-quarter 2016, compared to $338 million and 62 cents, for fourth-quarter 2015.

Looking forward, CenturyLink said it expects growth in strategic revenues and data integration revenues in first-quarter 2017 to be offset by anticipated declines in legacy revenues, resulting in lower operating revenues and core revenues compared to fourth-quarter 2016.