Internet speed becomes focus of CenturyLink.(Telecom & Wireless Technology)

WITH LITTLE FANFARE, THE, nation's largest rural telecommunications companies was formed on July 1.

That's when CenturyTel Inc. of Monroe, La., and Embarq Corp. of Overland Park, Kan., finalized their merger, creating CenturyLink Inc., based in Monroe, with 7.9 million access lines. CenturyTel was already ahead of Windstream among local exchange carriers in Arkansas--No. 2 to Windstream's No. 3.

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The new company has said it plans to launch the CenturyLink brand in most of its markets in 33 states by the end of 2009. Before the merger, CenturyTel had 2 million access lines, and Embarq had 5.9 million lines. That compares to Windstream Corp., which operates in 16 states and has about 3 million lines.

In approving the merger June 25, the Federal Communications Commission imposed a number of conditions.

CenturyLink must offer broadband Internet access service at a minimum download speed of 768 kilobytes per second to 90 percent of its eligible access lines using wireline technology within three years of the transaction's closing date. CenturyLink must use alternative technologies such as wireless broadband for the remaining 10 percent of eligible access lines. And CenturyLink must offer its customers greater Internet speeds.

In Arkansas, the combined company had about 190,000 total access lines and generated revenue of $105 million in 2008, with Embarq contributing only a few thousand dollars in revenue from pay phone services, according to data reported to the Arkansas Public Service Commission and compiled by Arkansas Business.

Windstream serves about 175,000 access lines in Arkansas and generated fiscal 2008 revenue of about $87 million. Despite being of similar size in the state, Windstream does not view the new company as a direct competitor since the two companies' market areas rarely overlap, David Avery, a Windstream spokesman, said.

Cost Savings Seen

The CenturyLink merger is projected to create about $400 million in savings for the new company, according to CenturyLink. The FCC has its doubts about the projected savings, but believes the cash generated by merging CenturyTel and Embarq will ultimately serve customers.

Although "we do not fully accept the Applicants' claim of $400 million in cost savings, [...] we nevertheless find that the merger is likely to result in savings in fixed and marginal costs, some of which are likely to accrue to the benefit of consumers," according to the FCC order.

Customers will experience improvements as the merger produces greater efficiencies, said Jeff Jones, CenturyLink's communications manager for Arkansas, Mississippi and Louisiana. John Dreher was named CenturyLink's general manager for the region. Dreher, based in Jacksonville, earned the promotion after serving as CenturyTel's general manager for Arkansas and Mississippi.

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The merger will allow CenturyLink to lower the access fees charged to make long-distance calls in CenturyTel's coverage area.

The fees are charged to long-distance providers, Jones said. So if the fee is lower, the long-distance company may pass the savings on to customers, he said.

Rates will remain steady for Arkansas customers, Jones said. The savings will benefit customers in other ways, he said.

"Anytime you can become more cost effective as a company, you become more cost effective to customers," Jones said.

The savings will allow CenturyLink to invest in its infrastructure.

"Customers in Arkansas and everywhere else in the combined companies will benefit from these combined synergies that will enable us to invest in advanced technologies more rapidly to more customers and remain competitive," Jones said.

Broadband investment

Investing in high-speed Internet access will be one of CenturyLink's main goals.

The merger will require CenturyLink to meet further goals relating to broadband access. Within three years, the company must offer 768 Kbps Internet connection to 90 percent of customers.

In Arkansas, we are "already up in the 90 percent range for high-speed Internet into our customers' houses now. We are in pretty good shape in Arkansas," Jones said.

For the remaining 10 percent of customers, CenturyLink will be able to increase high-speed Internet access to its customers, both in Arkansas and nationally, through various means.

The company already has a broadband network in place in much of its area that can be expanded. Plus, CenturyLink will offer wireless and satellite access to customers beyond the network's reach, Jones said.

If CenturyLink finds that it's too expensive to build broadband to that last 10 percent within the three years, it will examine providing broadband via satellite, he said.

The $787 billion American Recovery & Reinvestment Act of 2009 might also offer opportunities for expanding broadband. The stimulus bill is offering about $7.2 billion in grants for rural broadband build-out. The first round of grant proposals must be submitted by mid-August.

Since the company has not finalized the proposals it will seek, Jones could not speculate on what, if any, regions in Arkansas will benefit. The company will seek what it can, he said.

"CenturyLink continues to evaluate opportunities that may prove feasible for the company to apply for broadband stimulus plan dollars," Jones said. "However, with the recent completion of the Embarq acquisition, CenturyLink has not completed its process of reviewing the guidelines."

Windstream is also approaching the stimulus funding tentatively.

"It is difficult to tell whether it would be beneficial to apply for any of the money or not," said Michael Rhoda, Windstream's senior vice president for government affairs. "We are in the process of determining whether or not to apply based on the conditions that accompany the program."

Faster and Faster

Beyond offering broadband access of at least 768 Kbps, the company has also committed to further improvements, according to the FCC order.

CenturyLink committed to providing at least 87 percent of its residential and business customers with broadband capable of downloading at 1.5 Megabytes per second within two years; and CenturyLink's 3 Mbps system must be available to 75 percent of access lines within one year, 78 percent within two years and 80 percent within three.

CenturyLink's commitments to the FCC to improve broadband access are achievable, said Annmarie Sartor, a CenturyLink spokesperson based in Monroe.

The commitments "really fit into our strategic plan of upgrading our infrastructure into our rural markets," Sartor said. "It's a company objective as much as an FCC condition."

The company already offers high-speed Internet at or above the FCC commitments in many Arkansas markets, Jones said.

"As demand for ever-increasing broadband speeds continues to increase, we will ramp up to provide that service," he said. "Because of the demand out there, we are already at 10 Mbps where we have the demand for that kind of speed. We are well past 3.5 [Mbps] in many of our market centers in the state already."

By Mark Hengel

mhengel@abpg.com

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