According to a recent Bloomberg report, CenturyLink Inc. CTL, a regional telecom operator in the U.S., declared that it is forging ahead with plans to cut 8% of its labor force which accounts to almost 3,000 to 3,500 workers losing their jobs. This decision was taken by the company to reduce its expenditures and deal with its reducing legacy voice services revenues which it has been facing for quite a long time. The company seems to be focused on reorienting its cost structure apart from achieving its other growth targets.
However, CenturyLink says that initially the employees will be offered a voluntary choice to leave their respective positions before they start conducting their involuntary dismissals. Reports state that the company had nearly 43,000 employees as of Jun 30, 2016.
Causes and Effects
CenturyLink’s core fixed-line local phone business has been slowing down significantly, which is evident from the consistent loss in access lines and legacy voice services on an organic basis. As of Jun 30, 2016, total access lines were 11.413 million, down 5.7% year over year, which accounted for loss of 198,000 access lines. Quarterly total revenue of $4,398 million was down 0.5% year over year, of which, strategic revenues totaled $2,030 million, up 5.2% year over year whereas legacy revenues accounted for $1,938 million, down 7.2%. The consumer segment revenues also declined 0.6% year over year to $1,494 million followed by a 2.3% fall in business segment revenues to $2,597 million in the second quarter of 2016
The dismal performance was primarily attributed to the substitution of traditional wireline telephone services by wireless and other competitive offerings and lower long distance minutes of use. In addition to large telecommunications providers the company faces intense competition from cable TV operators and other wireless companies which aggressively offer traditional voice service over their networks. Improvements in the quality of VoIP services have enabled cable TV, Internet, and telephone companies to offer services at attractive price points.
Due to such declining legacy voice revenues, the company has been incurring an overall loss of $600 million per year. Unlike other U.S. telecom behemoths – AT&T Inc. T and Verizon Communications Inc. VZ who have their businesses diversified into both wireless and wireline segments separately, CenturyLink’s data centre business which has already shown negative results is expected to witness an overall fall of 2% this year, as estimated by several analysts.
Zacks Rank and Stocks to Consider
CenturyLink currently carries a Zacks Rank #3 (Hold). A couple of better-ranked telecommunication stocks include NTT DOCOMO, Inc. DCM and Nippon Telegraph and Telephone Corporation NTT, both holding a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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