CenturyTel Inc. Takes on Competition with Merger

A Louisiana-based telephone company is on the fast track to give some of the top carriers, including Sprint Nextel Corp. and Qwest, some new competition.

 

Century Tel, which recently completed its merger with Embarq Corporation, has become the nation's fourth-largest carrier in terms of market value, behind Sprint (News - Alert), according to a MarketWatch report. The combined company, which will be known as CenturyLink, will serve more than 2.1 million broadband customers, more than 440,000 video subscribers and approximately 7.5 million access lines in 33 states.

 

The company announced plans in October to buy Embarq (News - Alert) for $5.8 billion in stock. The acquisition was part of CenturyTel’s (News - Alert) plan to cut costs and stay competitive in traditional phone business, TMCnet reported.  CenturyLink officials said the company expects to generate annual full run-rate operating and capital synergies of approximately $400 million by 2011.

 

"They're the biggest phone company no one ever heard of," Todd Rethemeier, managing director at the investment firm Hudson Square Research, told MarketWatch.

 

As a result of its series of acquisitions, CenturyTel’s market value has topped $9 billion, coming second to Sprint at $12.5 billion and surpassing Qwest at $6.5 billion, MarketWatch reported.

 

During a time of a steep economic downturn, CenturyTel is one of the few companies in any sector to catch investors’ attention. Since January, CenturyTel shares are up nearly 7 percent, outpacing competitors like AT&T Corp. and Verizon Communications Inc., which lost ground over that period, MarketWatch said.

 

Perhaps one thing holding investors back is the fact that CenturyTel doesn't sell wireless services. In addition, the company hasn’t gotten into TV business like that of AT&T and Verizon (News - Alert), MarketWatch said. Yet, CenturyTel reportedly has been testing an Internet-based TV service.

 

 One analyst, Ovum (News - Alert) Independent Principal Analyst Mike Sapien, said that without a major wireless offering, the combined company will be restricted to half of the new emerging services and growth opportunity, he said.

 

“It will benefit from some potential savings and/or synergies in deploying IPTV (News - Alert) (News - Alert) to residential customers, and some benefits with larger-scale deployments,” Sapien said in a TMCnet report. “It seems unlikely that the new entity can stand still with the current satellite TV bundling approach, and the merger may not add enough scale or base of customers to make a difference.”

 

Yet CenturyTel's biggest bright spot is its broadband service.  Executives said they see opportunity for the company to boost DSL sales as a result of the Embarq merger since Embarq sold broadband only to a small pool of customers, MarketWatch said.