June 5, 2013

CenturyLink’s (CTL/NYSE) management has recently been more open in discussing their model for further integrating a fibre/connectivity business with a CoLo/ managed services/cloud business. Their roadmap for growth has certain implications for other players in the market.

CenturyLink (CTL-NYSE), which generates $18.4 billion in revenue, has built a portfolio of 200,000 route miles of fibre and more than 50 data centres (the former mainly from the acquisitions of EMBARQ, CenturyTel and Qwest, the latter from Savvis).

Having dipped into its pockets to spend $2.5 billion for Savvis in 2011, CTL invested a further $450 million into the business in 2012 and is on track for an incremental $250+ million of investment this year. Substantial portions of that have gone towards automation, expanding connectivity for its data centres and driving fibre into carrier neutral data centres (i.e. the old Switch & Data facilities acquired by Equinix, IO, CoreSite etc.). CTL currently estimates that a fifth of all carrier neutral data centres in the US are now tied into its network.

Savvis is thus making the argument that fibre connectivity is as important as access to power, if not more so, for many customers. Interestingly CTL’s model for spending on incremental fibre build-out is also now based on several factors beyond potential traffic volumes: proximity to Savvis data centres and utilisation rates of competing data centres are also added to the go/no-go model.

Revamping the sales force is also a focus. Whereas the former Savvis sales force focused primarily on CoLo and managed services, with a point-to-point circuit being potentially the connectivity element in a sale, the CTL salespeople had, predictably, focused primarily on connectivity. The company therefore set up a sales team that understands both product lines and can assist in cross-selling to existing products and engage in a cloud-focused conversation with enterprise customers. Management suggests that initial evidence (higher than market average IP VPN sales) is positive and supports the effort.

The effort at integrating sales is moving faster than system and portal integration: not a surprise for a company of this size. Savvis’ customer portals are largely unchanged and the company has recognised that linking in connectivity services – with all of the provisioning, configuration, support and billing issues that brings – is not a trivial challenge. However an effort is underway internally to standardise data and approaches and produce an integrated portal in 1-2 years. As these efforts bear fruit CTL sees it being particularly well placed to attack the client bases of standalone hosting companies. This is a very different approach from SoftLayer/IBM (announced yesterday), which is counting on brand and differentiated cloud offering and software to stimulate growth.