Legacy telcos chalk up historically bad financial results

by Steve Blum • , , ,

Forward looking statement.

It’s hard times for legacy telephone companies, at least the sort that have to rely on wireline – mostly copper – systems to serve customers. The plummeting share prices of Frontier Communications, CenturyLink and Windstream have gone where no telco has gone before. According to a story by Sean Buckley in FierceTelecom, that’s the conclusion of financial analysts at Cowen…

“Shares in the wireline [incumbent/rural carrier] space (CenturyLink, Frontier, Windstream) have endured the worst three consecutive quarters in industry history, with shares plummeting an average of -20% in 4Q16, -21% in 1Q17, and -24% in 2Q17 (we note another -5% in 3Q17 thus far), mostly from Frontier and Windstream as CenturyLink shares are being supported by the Level 3 acquisition,” Cowen said in a research note…

Overall, the three companies face the industry-wide challenge of balancing strategic service growth with ongoing legacy service declines and losing market share to cable operators.

Additionally, each of these companies has been dealing with specific headwinds in their businesses. Frontier has been challenged by integrating the properties it purchased from Verizon in California, Texas and Florida, while CenturyLink is dealing with a raft of lawsuits over alleged consumer fraud issues.

Windstream isn’t a factor in California, but Frontier and CenturyLink are, and both companies are showing increasing signs of desperation as they try to bend regulators and lawmakers to their will.

CenturyLink wants permission – quickly – to buy Level 3 and consolidate ownership of key long haul fiber routes in California into a cozy club of three monopoly-centric telcos. It needs a fast yes from the California Public Utilities Commission in order to close the deal by its self imposed end-of-September deadline, and its arguments and pleadings have taken on a shrill, incoherent tone.

Frontier is fighting on two fronts. Its attempts at the CPUC to derail competitive fiber builds in rural areas where it hoped to milk monopoly profits from decaying copper have pushed past the boundaries of truth, and its lobbyists are trying to get the California legislature to stop the bleeding by building a statutory wall.

Radical innovation is needed. Allowing Frontier and CenturyLink to hold businesses and consumers hostage will only be short term help, at a high long term price that Californians should not have to pay.