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CenturyLink Enterprise IT, Managed Services Are Bringing The Former CLEC Into The Future

While business revenues dipped during Q2, CenturyLink's IT and managed services segment continue to go strong as the carrier pushes its strategic IT services portfolio.

Having fully absorbed Level 3 Communications last year, telecommunications firm CenturyLink said it's now able to offer better products -- such as hybrid cloud, SD-WAN, and managed services -- than each company could ever offer on their own.

"By combining the best of both company's portfolios, our responsiveness to the market will be enhanced … and will enable us to compete for a broader set of opportunities," Jeff Storey, CenturyLink's president and CEO said during the company's second quarter 2018 earnings call on Wednesday evening.

Storey, the former CEO of Level 3 Communications prior to its merger with CenturyLink, stepped up as CEO of CenturyLink this past March following the retirement of the telecom's longtime CEO, Glen Post.

[Related: CenturyLink CEO To Retire Earlier Than Expected As Former Level 3 CEO Storey Steps Up]

CenturyLink today is the second-largest U.S.-based communications provider to global enterprise customers behind cable competitor Comcast. The carrier is also living up to its promise that business services would account for 75 percent of its revenues post-Level 3 integration. Today, the business services segment brings in about 74 percent of CenturyLink's revenue.

Despite the push, CenturyLink's business sales declined slightly overall -- about 1.6 percent -- during the carrier's second financial quarter.

IT and managed services, however, continued to be a bright spot in CenturyLink's business sales in the second quarter of 2018. The segment pulled in $162 million, an increase of 5 percent from Q2 2017's result of $154 million. The Monroe, La.-based service provider has been pushing its focus on strategic IT solutions and away from legacy services, and the shift is paying off, according to the provider.

Wholesale and indirect revenue, on the other hand, dipped 3 percent from $1.28 billion in Q2 2017, down from $1.32 billion this quarter. At the same time, enterprise sales, a segment that includes CenturyLink's high-bandwidth data services, managed services, and SD-WAN packages, stayed flat year-over-year at about $1.29 billion for both this quarter and 2017's second-quarter.

Small and medium business sales slipped slightly to $884 million during the quarter, compared to $993 million in Q2 2017. CenturyLink has recently focused more of its efforts on this space, and in 2017 revealed several new offerings specifically to SMB customers, including CenturyLink Business Wi-Fi, CenturyLink Business VoIP for small business customers, and CenturyLink Managed Enterprise with Cisco Meraki.

Sunit Patel, CenturyLink's executive vice president and CFO, said CenturyLink is seeing "improved productivity" from its sales teams, and is now selling into larger enterprise accounts, which is expected to translate into a trend upward for business revenues. CenturyLink did not specifically comment on the productivity of its channel partner community during the earnings call.

The carrier touted some of its enterprise customers that are now relying on the carrier as its primary service provider during the call, including General Mills.

CenturyLink expects to grow its wallet share with its large business customers as more enterprises seek integrated IT and communications solutions, Storey said.

"We find that customers want an integrated network solution, and we have a product portfolio able to meet those needs," he said. "We believe the CenturyLink of today is very different than the [company] of the past."

Voice and collaboration sales continued its downward trajectory during the quarter, falling 8 percent with revenues of $1.66 billion. In the same year-ago period, voice and collaboration saw $1.80 billion in sales.

Consumer revenues declined by 6 percent to $1.35 billion during the quarter compared to Q2 2017's result of $1.44 billion, which the provider attributed to declining legacy voice revenues, lower broadband, and video revenues, and increased cable competition. Consumer broadband subscribers also fell to 4.91 million from a year-ago total of 5.23 million.

For the quarter that ended June. 30, the provider reported consolidated total revenue of $5.90 billion, in which business services accounted for $4.37 billion. Total revenue declined about 2 percent overall from Q2 2017's result of $6.04 billion. CenturyLink reported net Income of $292 million for the quarter, compared to $69 million last year.

CenturyLink beat Wall Street's prediction of $0.24 per share this quarter, reporting diluted earnings per share of $0.27 for its second-quarter, an increase compared to diluted earnings per share of $0.06 for the same period in 2017.

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