CenturyLink/Qwest: A Rambling Q&A

April 23rd, 2010 by · 10 Comments

Yesterday’s blockbuster M&A deal between CenturyLink and Qwest brought in a whole lot of readers looking for answers.  I don’t pretend to have them all, but of course that has never stopped me before and won’t today either.  However, please do not hesitate to correct my ramblings in the comments below!

  • For the geographically impaired, where exactly is CenturyLink’s territory? – Here’s a quick map from Wikipedia.  Their most extensive territories are in the Pacific Northwest, Colorado, Wisconsin, Missouri, North Carolina, and Florida – with lots of other isolated bits and pieces of course
  • Aren’t they still integrating Embarq?  Won’t this distract them and cause chaos? – Actually, they probably have a year before it closes in which to clean up much of the Embarq heavy lifting – this just keeps their lawyers busier.  Besides, integrating non-competing ILEC territories isn’t actually that hard, and Embarq hasn’t been causing them much trouble it seems.
  • What’s their wireless strategy? – Well, so far it has been to pretend that they don’t need one.  Speculation often centers around Sprint, but why not go straight to Clearwire and offer them a sweet backhaul deal across the new company’s huge coverage area and maybe actually do some of the constructing in exchange for a favorable piece of that WiMAX action?  Why grovel forever at the feet of Verizon and AT&T for LTE scraps?  By the time this deal goes through, Clearwire will be expanding out of the major markets and deeper into their turf – it may make sense then.
  • What will they do with Qwest’s longhaul network? – The same thing Qwest has been doing with it of course:  operate it until someone overpays for it or the exaflood arrives, whichever comes first.  Since they won’t actually have it for a year or so, what this does is take that asset out of play in the longhaul consolidation puzzle, which will probably impact the potential of deals between LVLT, GLBC, and Sprint – it may even trigger a deal.
  • Will regulators stop it? – Not likely, the two companies don’t actually compete head to head in very many places, and therefore competition is not harmed much.  Besides, it would make them look awfully silly refusing this one after approving the SBC/AT&T/BLS super-mongo-mega-combo.
  • How big is big enough?  Will they buy Windstream, Frontier, and Fairpoint too? – Big enough?  You have to be kidding right?  Ask AT&T if they’re big enough yet.  I doubt they’re done, but CenturyLink won’t be able to make its next move until late 2011 – by which time I’ll bet Windstream will have bought one or both of the other two.
  • When do the layoffs start? Not until after the deal closes, which probably means next summer.  Certainly there will be some, but there’s plenty of time between now and then for a whole ‘nuther recession to hit, so let’s put that one on the back burner shall we?

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Categories: ILECs, PTTs · Mergers and Acquisitions

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10 Comments So Far

  • Frank A. Coluccio says:

    Here’s a question that is probably already on everyone’s mind, at least tacitly: When the integration is completed, or even some time before that point, will the new entity be acquired by AT&T or Verizon?

  • Pat Mahony says:

    Thank you Rob for your insight and tongue-and-cheek perspective on the CenturyTel/Qwest deal. Your Q&A was enlightening for this reader.

  • The_highwayman says:

    Very doubtful T or VZ would even be enticed by this. VZ had their chance to grab Q and instead took out MCI, while Q was bidding for it…

    CTL is a very rural play…think Eagle Colorado, and farm country out in Missouri…

    what we should be thinking about is if Windstream and CTL decided to merge down the road….

    As far as the Q LH network, my gut say’s they will keep it and here is why and something that has not been brought up…

    Q is part of the Networx contract under the guvvie and Q does have significant revs from guvvie…CTL is not about to uspet that dynamic at all…

    I think CTL is going to become a large Networx bidder and winner….for example and I may be wrong, but I believe CTL through Embarq has the Missouri areas of Sedalia and Warrensburg MO….and between that stretch of HWY 50 lies WHiteman AFB, home of the B2….the Q LH netowrk plays a role here and I highly doubt we see it go away or get sold…

    • Rob Powell says:

      The Networx/Fed angle is a valid point that I haven’t thought much about. The CenturyLink assets probably will make Qwest’s federal unit more competitive in bidding for those contracts.

      • Jerry's Kids says:

        Name me 10 large govt installations in CTL territory.

        • anonymous says:

          Served by CTL, Ft. Riley, KS, Little Rock AFB, Barksdale AFB, Moody AFB, Redstone Arsenal and Eglin AFB, there may be others. Near-net are NAS Pensecola, NAS Memphis, Whitmam AFB, Keesler AFB, Tinker AFB and Randolph AFB to name a few.

  • bbs says:

    Rob, from a regulatory perspective, is CenturyLink inheriting the Telecom Act provisions that applies to Qwest as a descendent of USWest? (TRRO, Triennial review, access to UNE-L , wholesale rates, etc? I do not think CenturyLink has (nor wants) a wholesale business on that side.

  • Jerry's Kids says:

    My prediction is that the QC/QCC m&a activity is not over yet , Q long haul could be spun off to level 3 post merger CTL/ Q in 2011-2012.
    Then, CTL could eliminate severance charter, so letting go thousands of QCC staff would be done at a comparably low cost. Thats the bad news for QCC employees.

    I think the CTL merger deal makes sense for Q now because it provides access to cash, increased dividend for shareholders, and allows CTL the Qwest QC customer base at very low acquisition cost once you pay for severance on the QC staffers who will be eliminated, add to this all the denver real estate, healthcare costs for reitreees, and positions CTL to deal with Qwest pacts with unions.

    Under the pending CTL Qwest agreement Qwest can’t sell off QCC without breaking the non solicitation clause which would cost Qwest $350M.

    But post merger, if CTL needs to reduce debt to impove credit ratings (back up to where it was pre merger ) then I can see CTL selling QCC assests to Level 3.
    I’m a little surprised and disappointed that Google, DT or BT didn’t step in and buy the long haul as part of the CTL transaction- maybe that’s still to come..

    Level 3 buying QCC assest would allow Level 3 would give sorely needed pricing power. It would give QGSI better local access footprint to deal with increasing T and Verizon rates over the next few years. It would provide QCC with VoIP/ SIP Trunking solution, CDNS and better overall potential to deploy IaaS solutions.

  • toddforthree says:

    if you have to pick a loser here i think it would be sprint. the odds of them being the long haul provider for the new ctl are very low. if my memory serves me correct sprint also signed a 3 year deal with emabarq for special access at the time of the spin off. should be fun to watch those negotiations.

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