CenturyLink Buying Qwest in a $10.6 Bln Deal

In a move that may shake up the U.S. telecommunications industry, the firth-largest telecommunications operator CenturyLink—created from the merger of CenturyTel and Embarq——has announced it will be merging with Qwest, the nation’s third-largest telco, in a tax-free stock-for-stock deal valued at about $10.6 billion. The deal is seen as a way for both companies to benefit from scaling as the market for traditional landline communications in the United States continues to dwindle as consumers switch to alternatives like wireless and Internet-based communication and digital voice packages offered by satellite and cable television providers. However, the combined company will not be out of the digital services game: the combined company will have a 173,000-mile fiber network and expects to offer a broad range of communications options to consumers, business, and wholesale customers.

“We believe the combination of CenturyLink’s and Qwest’s employees, assets, and service areas will provide us greater scale, scope, and expertise and will provide significant benefits for shareholders, customers, and our communities,” said CenturyLink president and CEO Glen F. Post III, in a statement. “This combination will enhance our ability to deploy innovative IP products and high-bandwidth services to business customers, expand broadband availability and speed to consumers, and offer superior, differentiated video products.”

When the deal is concluded—assuming it is approved by both companies’ boards—CenturyLink shareholders will wind up with about 50.5 percent of the combined company. The combined company would be operated out of CenturyLink’s current headquarters in Monroe, Louisiana, rather than Qwest’s headquarters in Denver, Colorado. A good portion of CenturyLink’s business derives from rural phone subsidies; the company could see a portion of that revenue vanishing under the FCC’s proposed national broadband plan, which proposes diverting funds from subsidizing rural phone service to subsidizing nationwide broadband access.

The combined company would have about 18 million telephone customers in 37 U.S. states, although it would still be the third largest telco system in the country: AT&T and Verizon’s telco operations are both substantially larger. (If you’re curious, the fourth largest telco in the United States isn’t a traditional phone company: it’s Comcast.) Qwest mostly operates in western U.S. states; the company was an early pioneer in laying out high-bandwidth fiber networks, but a series of mis-steps left it saddled with significant debts. Qwest’s brand was also seriously tarnished by the insider trading conviction of former CEO Joseph Nacchio, who is currently serving a six-year sentence in federal prison…although he’s reportedly attempting to get an appeal to the U.S. Supreme Court.