For the second time in a month, Louisiana-based carrier CenturyLink made a major acquisition that will put it in a strong position to become a big-time player in the enterprise broadband market.
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CenturyLink this week announced it was paying $2.5 billion to purchase Savvis, a company that specializes in offering managed services, hosting and infrastructure-as-a-service, among other enterprise-centered services. Earlier this month CenturyLink completed its acquisition of Qwest, thus creating a new major carrier that will have a combined 145,000 miles of local fiber and will have a fiber network that covers 190,000 miles throughout the United States. CenturyLink will also benefit from Qwest's big investment to upgrade its entire Ethernet backbone to 100Gbps, as the company said this month that it was due to finish the upgrade '"soon'" to help businesses to run more high-bandwidth applications.
So what's CenturyLink's endgame in all this? According to Nemertes Research chief officer Johna Till Johnson, CenturyLink looks to be making a play to become the third major enterprise carrier in the U.S. along with AT&T and Verizon. In particular she thinks that the Savvis acquisition will put CenturyLink in a prime spot to market itself to enterprises as a company that can deliver the same level of service as the big telcos.
"Savvis has long track record of delivering these managed services," she says. "Savvis has been doing this since its inception. Their appeal for enterprise customers is not so much, 'We can do it better' but 'We've been doing it longer.'"
But while the Qwest and Savvis acquisitions definitely put CenturyLink on the map across the country, the company is still missing one major piece: Its own wireless service on par with Verizon and AT&T. AT&T's recent decision to purchase T-Mobile means that the wireless industry will grow ever-more concentrated in the coming years and opportunities for CenturyLink to get in on the action will become more expensive.
Mike McCormack, a telecom analyst for Nomura Securities International, says the AT&T/T-Mobile deal means that Sprint would be the most likely candidate to get gobbled up by CenturyLink, although he notes that it doesn't look as though Sprint will be up for sale anytime soon given the struggles it's still having with moving customers off of its legacy iDEN network that it acquired from Nextel in 2005.
"Sprint isn't a carrier that's for sale but it's definitely something they'd be interested in," he says. "When people look at missing pieces for CenturyLink, the most obvious one that comes to mind is having a wireless solution for themselves. Currently they're reselling Verizon's wireless services."
McCormack also thinks that it might take a while for CenturyLink to get its own wireless service because it will have to spend most of the next year integrating Qwest's network into its own. He estimates that this process should at least go well into 2012 and could make it difficult for the company to aggressively expand its reach over a short period.
Johnson says even if it takes CenturyTel a while to become a nationwide player with both strong enterprise broadband and wireless services, it will be a welcome addition to a market that she thinks is in danger of becoming a duopoly.
"We've been pretty successful with having three main carriers over the last decade when it comes to seeing price reductions and innovations," she says. "But with two carriers you won't get that sort of competition."
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