CenturyLink CEO Plans To Create A Much Different Company As It Absorbs Level 3, Boosts Business Services

CenturyLink's sights are set on virtualizing its network, finalizing its Level 3 acquisition, and taking a less "capital-intensive approach" to complementary offerings, such as hosting, cloud and managed IT services.

"The company that we will be by late 2017 will clearly be much different than what we were coming into this year," pledged CenturyLink's CEO Glen Post during the company's Q1 2017 earnings call on Wednesday evening.

Post said that the Monroe, La.-based company is taking steps to position itself as one of the leading global network providers to enterprise customers.

[Related: CenturyLink Has Sold Its Data Centers, But Still Offers Cloud And Co-Location Services With The Help Of Partners]

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To help the company get there, CenturyLink has rolled its SMB segment into the enterprise segment in an effort to provide these customers with more "dedicated resources," according to Post. Up until now, SMB customers were handled by CenturyLink's consumer business unit.

CenturyLink is also pinning its future enterprise business revenue hopes on Cloud Application Manager, an orchestration platform for deploying and managing private and public clouds, and co-location environments, which CenturyLink unveiled in February.

"We are seeing momentum with Cloud Application Manager," Post explained during the call. "It has really, I think, invigorated a lot of our salespeople in terms of being able to help them have a product that we can serve our customers that allows them to move their workloads from one cloud provider to another."

High-bandwidth data services revenues for enterprise customers grew 4 percent year-over-year, driven by increasing demand for higher-speed enterprise data services, according to Post. These revenues increased to $769 million in Q1 2017, up from $738 million in Q1 2016.

"This increasing demand further validates the rationale for our pending acquisition of Level 3 Communications, which will transform CenturyLink into the second largest domestic communications provider serving global enterprise customers," Post said.

CenturyLink in 2016 broke its organization into three distinct groups – consumer, enterprise, and IT and managed services – as it prepares to pull in more business services revenues following the close of the Level 3 deal. CenturyLink said that the new company will earn 76 percent of its revenue from business customers.

IT and managed services revenues, on the other hand, declined by 6.2 percent to $152 million, down from $162 million. Enterprise segment revenues were $2.36 billion, a decrease of 3.5 percent when compared to Q1 2016. Post attributed these numbers to a decline in legacy services revenues, and said that while the company "doesn't expect" to be an industry leader in IT services, it does present a significant value-add to its enterprise portfolio. These services open the door for stronger relationships with business customers, Post said.

Total strategic revenues in Q1 2017 were $1.08 billion in the quarter, an increase of 2.9 percent from first quarter 2016. Stewart Ewing, executive vice president and CFO of CenturyLink attributed this growth to the revenue gains that high-bandwidth data services picked up during the quarter. High-bandwidth data services make up about 33 percent of CenturyLink's enterprise business segment today.

The carrier earned $0.30 a share, or $163 million, on revenues of $4.21 billion, for the quarter ended March 31. A year ago, it earned $236 million, or $0.46 a share, on revenues of $4.40 billion. The numbers, overall, were a disappointment; Wall Street was looking for earnings of $0.53 a share on $4.27 billion in revenue.

CenturyLink has been at the center of several telecom news cycles in recent weeks. The service provider closed its data center sale to a consortium led by investment firm BC Partners on Tuesday. CenturyLink also announced the executive team that would be leading the company following its Level 3 acquisition that is expected to close by September 2017. Post said that about 14 states had approved the merger to date.