by Bruce Tyson

Created on: April 22, 2010

Qwest Communications’ sale to Louisiana-based CenturyTel for a sizeable $10.6 billion unites two secondary players in the declining landline market. The purpose of this deal is largely defensive, seeing how the demand for traditional phone service is drying up, especially among consumers.

Bo-ring!

Telecommunications analysts note that neither Qwest not CenturyTel are much in the way of excitement. Neither firm has anything to offer customers in the way of new products and services. Furthermore, the combined size of the new company is not intended to be used to compete against any of the major players. This leaves cost savings as the primary motivation for completing the acquisition deal.

Prospects for the Combined Effort

Together, the two companies have service areas in forty states, including several metropolitan statistical areas. These markets combined with rural and underserved regions of the country will provide the business necessary to support the new venture. Experts say that, because data providers find that upgrading less-densely populated areas with new broadband cable and fiber optic data services is costly, with little ROI, these areas will continue to depend on land lines for the foreseeable future. The lack of broadband service eliminates the opportunity for customers to abandon their traditional phones for newer voice over IP (VoIP) services like Skype and Vonage.

DSL

One area of the market that Qwest and CenturyTel are working to improve is the availability of DSL service across their networks. At the moment, DSL is many customers’ only hope for improving their Internet access from existing dialup plans. CenturyTel says that efforts will continue to deploy DSL in both company’s service areas.

Cost Savings

CenturyTel expects that the synergy realized through the acquisition of Qwest should amount to over $500 million annually, an influx of cash that the company plans to use to shore up Qwest’s fiber optic services for businesses.

Outlook

While the Qwest acquisition portends to strengthen the company’s position and improve the chances of customers served getting access to DSL, there doesn’t seem to be much else on the horizon for the company. When queried about a potential entrance into the wireless communications market, CEO Glen Post through a wet blanket on speculation. He also indicated that no further acquisitions are on the horizon and that the larger company will continue to focus on providing land line communications services to its established service areas.

Transaction Details

The acquisition is set to give Qwest (stock ticker Q) shareholders $6.02 per share,15% more than its closing price on April 21. CenturyTel (stock ticker CTL) went up $.13 per share on news of the acquisition. 

Learn more about this author, Bruce Tyson.
Click here to send this author comments or questions.