CenturyLink’s Qwest Acquisition Cements Its Number Three National Wireline Position

| April 5, 2011 | Network Access and VPN Services
| Analyst: Brian Washburn

Event Summary

April 1, 2011 – CenturyLink has completed its acquisition of Qwest, cementing the combined carrier's position as the country's third-largest telecom provider, with $18.6 billion combined annual revenues and $3.1 billion positive free cash flow in 2010. Qwest's Business Markets Group will remain headquartered in Denver. The combined assets include access networks in 37 states and 190,000 route-miles of fiber. Qwest will transition to the CenturyLink brand in the coming months. CenturyLink anticipates operational and capital savings of $625 million within the next three to five years.

Quick Take

Analytical Summary

• Current Perspective: Moderate to CenturyLink, because the company completed its acquisition of Qwest by H1 2011, as was planned. In the year it took for the merger to complete, Qwest’s enterprise-focused Business Markets Group continued to keep revenues ($4.037 billion) and margins (40%) on track. The combined company will carry an immense amount of net debt for its size, about $19.25 billion. CenturyLink's plans to save $625 million annually in synergies within the next three to five years still seem to be grounded partly in lowered expenses from eroding wireline revenues.

• Vendor Importance: Very high to CenturyLink, because it takes Qwest’s position as the third-largest U.S. incumbent local carrier after AT&T and Verizon. The combined company has near-term cost-cutting opportunities by reducing overlapping workforce functions; in the medium term, it can shore up revenues by syndicating Qwest’s more comprehensive business services into CenturyLink territories; in the long term, the company can benefit from operational savings of combining networks and infrastructure.

• Market Impact: High on competitors selling business services, particularly in CenturyLink’s footprint, because the carrier will draw on Qwest’s more expansive Business Markets Group portfolio to serve its prospects more comprehensively. Businesses based in the Las Vegas metro are an obvious target where the combined company can redouble its efforts. However, competitors can also take advantage of any customer uncertainty as the Qwest name transitions to CenturyLink to try and draw away the company’s enterprise business accounts.

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Competitive Strengths and Weaknesses

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