One of the leading integrated telecommunications service providers, CenturyLink Inc. (CTL) has been announced eligible to receive a minimum of $90 million from the Federal Communications Commission’s (FCC) Connect America Fund (CAF) this year. These funds provide broadband service to suburban households in high cost regions.
This sum remains the second tranche of funds that the company is being granted under FCC’s CAF 1 phase. Currently, CenturyLink is under an evaluation process to estimate the utilization of these funds and the amount that is to be eventually accepted by the company. In addition, CenturyLink, in its press release, also stated that it will deploy an equal amount of its own capital to support the FCC cause.
Financial grants from CAF represent an important source of CenturyLink’s network access revenue. The company has already received $35 million in CAF phase I, which was utilized to deploy broadband service to 45,000 households in under served areas. CenturyLink expects to benefit from the $1.8 million in funds that FCC is planning to disburse annually under CAF phase 2.
The company continues to experience a decline in subsidy payments received under the FCC’s Federal Universal Service Fund or USF, which now converted into CAF. On Nov 23, 2011, the FCC reformed its USF and inter-carrier compensation (fees that carriers pay each other when they connect telephone calls) rules.
The FCC highlighted its efforts to expand high-speed Internet services to rural areas over the next six years (2012–2018). It will reduce access and compensation rates charged by CenturyLink over the next six years, resulting in significant decline in the company’s access revenues.
CenturyLink, which operates with other market players like Leap Wireless International Inc. (LEAP), Clearwire Corporation (CLWR) and Frontier Communications Corporation (FTR) has a Zacks Rank #3 (Hold).
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