(CTL) CenturyLink Wins GSA Contract

One of the leading integrated telecommunications service providers, CenturyLink, Inc. (CTL) has won a project order worth $20 million from the U.S. General Services Administration (GSA). The contract entails CenturyLink to provide Voice over Internet Protocol (VoIP) services to GSA over the next five years. The VoIP solution will include hosted and premises-based services covering GSA Region 8 offices in Colorado, Montana, North Dakota, South Dakota, Wyoming and Utah.

VoIP communication services are among the fastest growing markets globally, gaining momentum though increased utilization in mobile VoIP communication. The new contract proves CenturyLink’s strength over advanced network build-out that enables the company to offer competitive technology solutions and services like VoIP. This is not CenturyLink’s first association with GSA. The company previously provided Centrex and business voice solutions to GSA.

Further, the acquisition of Embarq, Qwest and Savvis also strengthened the company’s position in private line (including special access), broadband, MPLS (data networking technology), hosting, video and VoIP services. The company created a new offering for higher-speed Ethernet, bundled with VoIP and IT services designed exclusively for SMEs. We believe such innovations would attract more customers and lead to market share gains for CenturyLink.

To leverage the opportunities in the voice and data services, the company continues to expand its network services such as fiber-to-the-node (FTTN) access to additional 7.1 million homes by the end of the year. Currently, the company has covered 6.3 million units under its FTTN infrastructure.

However, the company remains challenged by the ongoing fixed-to-wireless substitution coupled with the growing presence of alternative services such as VoIP service by cable operators in overlapping markets. Further, significant integration challenges as well as increased operating expenses resulting from the acquisitions may impede operating performance going forward. In addition, the company faces competition from peers like Leap Wireless International Inc. (LEAP).

We have a long-term Neutral recommendation on the stock. For the short term (1–3 months), CenturyLink retains a Zacks #3 Rank (Hold).

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