Uncommon Wisdom

Apr 23 2010   12:18PM GMT

CenturyTel and Qwest together: Could they be a contender?



Posted by: Tom Nolle
Tags:
CenturyTel
IXC
mergers & acquisitions
Qwest
US RBOC

In an ironic déjà vu thing, CenturyTel is acquiring Qwest for a stock swap. We think this is ironic because Qwest was created when an overvalued IXC wannabe (Qwest) took advantage of inflated stock pricing to buy US West, one of the original seven U.S. RBOCs when the Bell System was originally broken up. The result was a shambles that hurt the local exchange business of the new company and, of course, the IXC business was in fact a child of the bubble.

The question here is whether CenturyTel, which is at least more like a real telecom company than Qwest was in the bubble era, can make something of a symbiosis here. Qwest’s profit margin is much lower than CenturyTel’s margins, and the territory isn’t a super prospect for near-term exploitation of opportunity. Still, the move creates a real third competitor in the US telco world, which probably wasn’t possible any other way.

The story is that the growth in the future will come from business services, but we think that unless it plans to get into cloud computing services or something at a higher layer, Level 3’s experience shows that there’s not much room for enterprise growth.

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