CenturyLink CEO Disappointed With Business Segment Growth, Data Center Business Still Up In The Air

Telecom giant CenturyLink posted better-than-expected first-quarter 2016 earnings and growth in its high-bandwidth services unit, but the jury is still out on whether the provider will hold onto its data center assets.

Monroe, La.-based CenturyLink saw a 7 percent increase in its high-bandwidth data services -- including MPLS and Ethernet revenue driven by its business customers -- in the first quarter compared with one year earlier. The growth, however, wasn't enough for CenturyLink President and CEO Glen Post.

"We had growth, but we expected more than 7 percent. We expect to see that level pick up during the second half of the year," Post said during the earnings call Wednesday. "Our IT services segment is small, but we expect it to contribute more to revenue growth on the back end of the year."

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CenturyLink has discussed plans to monetize its colocation assets via a wholesale model to third-party service providers and enterprises, but Post said CenturyLink is still on track evaluating the future of its data centers, as well as "strategic alternatives" for its colocation business.

"We are pleased with the level of interest and progress to date," Post said of the provider's data center and colocation evaluation. "We believe there is a more efficient way to enable [colocation] services for our customers. … While we like our colocation business, we believe that our priority for capital investments is in the network."

Strategic revenue for the quarter stayed flat, at $1.58 billion. CenturyLink attributed the lack of growth to increased high-bandwidth data services revenue offset by low-bandwidth data services and hosting eating into revenue.

Unlike its competition in the carrier space, which largely saw strong business revenue during 2016's first quarter, CenturyLink's total business segment revenue sank more than 3 percent, to $2.6 billion from $2.69 billion in the same period the year before.

The provider cited declines in legacy services by 6.9 percent, because of low-bandwidth data services and data integration revenue, which were slightly offset by growth in high-bandwidth data services revenues.

Despite an overall decrease in business services, the provider's growth in high-bandwidth services is encouraging, said an executive of a partner.

"CenturyLink is much more advanced when it comes to how technology is delivered to the enterprise," said Paul Camacho, co-founder of Santa Clara, Calif.-based C3DNA, an application life cycle management provider and CenturyLink partner. "They have a good background with IT services, and a nice, well-rounded set of assets. It's not only its IT and technology, but they own the freeways --the network."

CenturyLink sees itself as more of an IT services company, rather than a telco, and Camacho said he agrees with that.

"I think [CenturyLink] is going to continue to rise in the tide of IT services companies," Camacho said. "I think they are obviously committed to delivering against the promise of cloud and more agility. I think we are just scratching the service for what CenturyLink is going to do with business services and the types of partnerships they are driving."

Overall revenue for the telecom provider in the first quarter totaled $4.4 billion and earnings per share hit 71 cents, beating Wall Street's estimate of $4.43 billion and earnings per share of 68 cents. Operating expenses, excluding special items, decreased to $3.69 billion in the quarter from $3.76 billion in 2015's first quarter.

CenturyLink also said it has completed two debt issuances totaling more than $1.2 billion since Jan. 1.