CenturyLink plans to reach 14M households with 100 Mbps over copper via vectoring

CenturyLink (NYSE: CTL) sees fiber as a key to its broadband strategy, but in places where it can't make the business case work for fiber the telco is confident that bonding and vectoring will enable it to deliver 100 Mbps and higher speeds over existing copper.

Speaking to investors during its first quarter earnings call, Glen Post, CEO and president of CenturyLink said that the company will continue to leverage a mix of bonding and vectoring to increase speeds on its existing copper network.

"Today, we only have about 250,000 households passed," said Post during the earnings call, according to a Seeking Alpha earnings transcript. "We expect to be close to 600,000 by year end. And we're looking at a plan that could reach over 14 million households over the next few years."

In the near term, CenturyLink can deliver 40 Mbps speeds or higher to over 30 percent of its addressable units, a speed that it says can "address most of our customer's actual needs."

By using vectoring, Post said that CenturyLink will be able to reach most of the addressable homes passed with higher speed services than what it can deliver today over its existing ADSL2+ and VDSL2 networks. This can be done at a relatively low cost of under $200 per home passed.

"And it's costing about $160 per home passed of vectoring, but it's getting 100 megabits out here too and it can be more than that," Post said. "But certainly 100 megabits is very possible at vectoring that we believe can cover a lot of our customer's needs over the next few years."

The service provider also made gains with its FTTH deployment, passing over 1.5 million homes and businesses with its 1 Gbps GPON service.  

"With the exclusion of the last couple of hundred thousand, I know we were at 21 percent penetration at the end of March," Post said. "And we just started with the last year with that GPON work, so we believe there's significant upside going forward with those GPON markets, as well as the new Prism markets, we entered just late last year a number of those markets."

But providing higher speed fiber-based services to residential customers is only one part of its broadband expansion story. Within the GPON markets it is rolling out service, CenturyLink continues to see potential in equipping multi-dwelling units (MDUs) with fiber to serve more business customers.

"We will leverage our localized marketing initiatives to drive penetration of the investments we've made to-date in GPON and other broadband technologies, and we will drive further penetration of our fiber-enabled, multi-tenant, commercial buildings and businesses," Post said.

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

Business: A key element of success in the business segment was the demand for high bandwidth data services, which grew over 7 percent year-over-year. Strategic revenues remained flat at $1.58 billion due to what CenturyLink said was increased high bandwidth services revenues offset by continued declines in low bandwidth data services and hosting revenues.

Overall business segment revenues were $2.6 billion, down 3.4 percent from the first quarter of 2015, primarily due to declines in legacy services, low-bandwidth data services and data integration revenues, which were partially offset by growth in high-bandwidth data services revenues.

By rolling out GPON-based capabilities into more MDUs, Post said that it will be able to drive further MPLS and hosting revenues this year.

"As we roll out the GPON capabilities as well as the vectoring type capabilities in these large and mid-sized markets, we're seeing really good success," Post said. "That's why we believe in the second half of the year we're going to see better growth than we've seen in a while in MPLS, the Ethernet type services."

Consumer: In the consumer segment, the story was once again centered on increases in broadband internet and CenturyLink Prism TV revenues. Strategic revenues were $774 million in the quarter, up 4.9 percent over first quarter 2015. However, total segment revenues were $1.49 billion for first quarter 2016, a slight decrease of 0.5 percent from first quarter 2015. Legacy consumer revenues declined 5.8 percent from first quarter 2015, as voice revenue declines were partially offset by select price increases. 

During the quarter, CenturyLink added about 16,900 Prism TV customers and 7,800 broadband subscribers. It added nearly 150,000 addressable homes in new and existing service areas, ending the quarter with more than 3.3 million addressable homes. What's interesting about the Prism customer additions during the quarter is that 53 percent of them were new customers. What's more, 98 percent of the new Prism customers also took a broadband service.

CenturyLink's first quarter operating revenues were $4.4 billion, down slightly year-over-year from $4.45 billion in the first quarter of 2015.

As seen in previous  quarters, CenturyLink saw that declines in voice and long-distance revenues, low-bandwidth data services revenues and data integration revenues were partially offset by the increases in business high-bandwidth data services revenues, consumer high-speed Internet and Prism TV revenues and high-cost support revenues related to CAF-II support in first quarter 2016.

Looking towards the second quarter, CenturyLink has forecast that 2016 operating revenues will be in line with first quarter 2016 operating revenues $4.38 to $4.43 billion. This is due to primarily due to anticipated growth in data integration, high-bandwidth data services, high-speed internet and Prism TV revenues being offset by expected declines in legacy and low-bandwidth data services revenues.

For more:
- see the earnings release
- here's the Seeking Alpha earnings transcript (reg req.)

Special Report: Verizon, Frontier transition: Wireline earnings in Q1 2016

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