CenturyLink plans to spend $400M less in 2017 capex, expects Level 3 network synergies

As CenturyLink completes its acquisition of Level 3 Communications, the service provider plans to dial back capital spending in 2017.

As it defers spending on projects that may be taken care of synergies via its Level 3 acquisition, CenturyLink expects to spend $400 million less in capex year-over-year.

CenturyLink said its capex could be less than $3 billion going forward.

Stewart Ewing, CFO of CenturyLink, told investors during the Deutsche Bank 2017 Media & Telecom Conference the reduction in capex will not significantly impact its broadband expansion goals.

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“For the standalone company, we believe we can continue the path that we need to upgrade speeds for our customers with less than the $3 billion a year of capex we have been spending,” Ewing said. “We basically decided to pull back to $2.6 billion this year which will have a minimal effect on revenue in 2017 and 2018.”

Ewing said that the reduction in overall capex reflects CenturyLink’s goal to take advantage of network and service builds already completed by Level 3.

“We really wanted to get the Level 3 assets in house and understand more of what the opportunities are there from a network synergy standpoint,” Ewing said. “We just felt like it was prudent to reduce capex by $400 million to essentially defer or delay some projects that otherwise may be taken care of by the Level 3 acquisition.”

CenturyLink will be able to leverage existing unused conduit that Level 3 deployed for their long-haul fiber network, for example.

“They put a number of conduits down when their long-haul national network was originally constructed,” Ewing said. “They are only using 2 or 3 today so there’s a real opportunity to build additional facilities as bandwidth requirements increase and hopefully build those facilities at a much lower cost than some of the competitors would have to build.”

Altering broadband goals

Completing its broadband expansion goals could face a slight impact as the telco realigns its capital spending plans. This means service provider could also reduce the percentage of customers it will enable with 40 and 100 Mbps.

In 2016, 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, be able to access 100 Mbps or higher speeds.

By 2019, CenturyLink had forecast that 70% of its consumer customers would be able to get 100 Mbps.

“It will probably shave three or four percentage points off of that but not much from an incremental standpoint,” Ewing said.

Cost reduction focus

At the same time, CenturyLink plans reduce costs via greater network and service delivery automation.

In 2016, the service provider took its most drastic cost cutting measure when it announced plans to lay off 8 percent of its workforce, or 3,500 people as part of an effort to stem bleeding from declines in its legacy telephony business line.

The service provider has upgraded its back office and has implemented virtualization across more of its network. To date, the service provider has implemented SDN and NFV technology into 60% of its major points of presence (POPs) as of the end of 2016. Echoing a similar trend by AT&T and Verizon, CenturyLink also plans to expand virtualization to all of its POPs.

“There are a number of automation projects we have underway that we believe over the course of the next 2-3 years that will allow us to take more costs out,” Ewing said. “Some of those are in the provisioning area, which is somewhat labor intensive today and we believe we can streamline that process with some of the automation tools that we’re adding.”

Ewing added that “we will continue to watch our costs and try to take costs out in 2017.”