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ATLANTIC-ACM Releases CenturyLink - Qwest Merger Analysis

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					ATLANTIC-ACM Releases CenturyLink - Qwest
Merger Analysis
April 22, 2010 04:54 PM Eastern Daylight Time  

BOSTON--(EON: Enhanced Online News)--ATLANTIC-ACM, a leading telecommunications strategy research
consultancy and benchmarking firm, today released the following analysis of the proposed CenturyLink-Qwest
merger:

CenturyLink - Qwest Merger Analysis

By Aaron Blazar (ablazar@atlantic-acm.com), ATLANTIC-ACM Vice President

Background:

CenturyLink and Qwest announced plans to merge operations today. The proposed $10.6 billion dollar deal will
effectively bring together the assets of the two ILECs into a company with 17.3 million access lines, 5.2 million
broadband subscribers, 174,000 miles of long-haul fiber, and approximately $5 billion in proforma enterprise
revenues.

Analysis:

The proposed deal will have several key implications for the competitive structure of the U.S. telecom industry.

    l   Moves Up Market: The deal provides CenturyLink with enhanced scale in the business market space,
        enabling it to continue to build its business customer base while leveraging a broader suite of IP-based
        products. On the business side, CenturyLink will be able to effectively move up-market with the addition of
        Qwest’s extensive business product portfolio. Since the small business offerings by ILECs are increasingly
        coming under fire from competitive cable providers as well as CLECs, this merger will allow the new
        CenturyLink to gain a very strong presence in the mid- to large-business telecom market.
    l   Cross-Sale Opportunities: This combination presents a two-fold, cross-sale opportunity. First, as the merged
        company gains a larger end-user footprint, the resulting entity will be able to support a greater portion of
        Fortune 500 customers' end-office needs. Second, the addition of Qwest’s advanced IP business product
        portfolio and sales force knowledge base will create an opportunity to market a new group of products to
        CenturyLink’s embedded small- and medium-sized customer base.
    l   Third Largest Business Market Player: Based on our latest annual sizing and share analysis, U.S. Telecom
        Wired and Wireless Sizing and Share: 2009-2014, ATLANTIC-ACM estimates that the new combined
        company will hold a 7.6-percent share of the total U.S. Business Market, ranking it third behind AT&T and
        Verizon. The combined company will enhance competition in the business space where Qwest has effectively
        grown its presence in the last three years with its strong data product suite. Look for the combined company
        to leverage its larger footprint and its expanded product portfolio to grow its share of wallet and to attract new
        customers within its last-mile footprint.
    l   Fourth Largest Consumer Provider: The combination of Qwest and CenturyLink will drive greater scale to the
        consumer side of each provider's operations. The combined company will have 5.2 million broadband
        subscribers and 17.3 million access lines. ATLANTIC-ACM estimates the combination will yield the fourth
        largest consumer telecom company behind AT&T, Verizon and Comcast, with an estimated $7.4 billion in
        consumer revenue in 2010. However, both companies have pursued very different strategies in the consumer
        space, with Qwest pushing its Fiber-to-the-Node offer, along with satellite TV and wireless resale, while
        CenturyLink has invested in rolling out IPTV (although it is in the early stages with only three markets
        complete) and purchased wireless spectrum (not yet built out). In the end, the combined company will need to
        find success somewhere in the middle in order to effectively compete with competitive cable offers. Ultimately,
        in the ongoing battle to retain consumer customers, the combined company will need to formulate and execute
        a well-defined strategy while determining ways of overcoming its wireless network deficiencies.
    l   A Combination of Wholesale Powerhouses: On the wholesale markets level, expect the combined company
        to deliver an all-encompassing, end-to-end data product offer, covering a wider expanse of territory, while
        trimming CenturyLink’s network costs. Both Qwest and CenturyLink have demonstrated a strong following
        among wholesale customers in our research (both won awards based on our 2009 Metro Carrier Report
        Card and Qwest won awards based on our 2010 Domestic Wholesale Long Haul Report Card). Meanwhile,
        the combination of assets will allow the company to sell end-to-end solutions across a larger footprint, which
        may prove advantageous in courting the rapidly-growing wireless backhaul space. Both Qwest and
        CenturyLink have announced plans to support the wireless backhaul needs of the Verizon Wireless LTE push.
    l   Reduced Wholesale Purchasing as Network Assets are Rolled On-Net: Historically, both Centurytel and
        Embarq lacked a true nationwide long-haul network, forcing them to purchase wholesale network services
        from competitive long-haul providers. With the merger, ATLANTIC-ACM expects that network needs will
        be brought on-net, driving cost synergies for the new combined entity. Although this will be positive for
        CenturyLink, it will have a negative impact on the overall U.S. long-haul wholesale market. Expect embedded
        long-haul voice and data network providers such as Level 3, Global Crossing, XO Communications, AT&T,
        Verizon and other carriers to see wholesale revenue losses, though the full extent of the network cost
        reductions is unknown and will not take shape in the market. If completed, look for the new company to focus
        on gaining momentum in supporting wireless providers' backhaul needs while leveraging the combined
        network to gain a greater share of wholesale customers’ wallets. This could pose increased competitive
        threats to large embedded long haul and metro wholesale players.

The Bottom Line:

The combination of CenturyLink and Qwest can allow for the expansion of business customer penetration while
trimming network costs. However, the proposed acquisition fails to address both providers' needs for a wireless
solution to drive growth and fill both business and consumer customer requirements. In the end, look for the largest
effects to come in the business and wholesale space as the scope and scale of the newly combined company enable
the pursuit of greater share of buyers' wallets.

About ATLANTIC-ACM

Boston-based ATLANTIC-ACM is a leading provider of strategic research and consulting services serving the
telecommunications and information industries. In addition to producing the industry's principal benchmarking, sizing
and opportunity studies, the company assists clients in evaluating telecommunications opportunities for successful
investment, market entry and long-term planning.

For more information, visit ATLANTIC-ACM's website at www.atlantic-acm.com.

Contacts
ATLANTIC-ACM
Aaron Blazar, +1-617-720-3700
Cell: +1-617-455-2872
ablazar@atlantic-acm.com

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Description: BOSTON--(EON: Enhanced Online News)--ATLANTIC-ACM, a leading telecommunications strategy research consultancy and benchmarking firm, today released the following analysis of the proposed CenturyLink-Qwest merger: CenturyLink - Qwest Merger Analysis By Aaron Blazar (ablazar@atlantic-acm.com), ATLANTIC-ACM Vice President Background: CenturyLink and Qwest announced plans to merge operations today. The proposed $10.6 billion dollar deal will effectively bring together the assets of the two ILECs int a style='font-size: 10px; color: m
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