USA - CenturyTel to Acquire Qwest in $10.6 Billion Deal

[ny times] In one of the largest telecommunications deals in years, CenturyTel, a provider of local phone and Internet services, said Thursday that it would acquire Qwest Communications in a $10.6 billion stock swap.

Both companies, which have large landline operations, have sought to increase their businesses in the shadow of bigger competitors like AT&T and Verizon, which offer both landline and cellphone services. The telecommunications industry has been ripe for further consolidation, which might resemble the wave of deals that swept the sector in the 1990s, analysts said.

The combined company will serve local markets in 37 states with about five million broadband customers, 17 million wirelines and 850,000 wireless consumers, the companies said in a statement.

The merger is also indicative of the broader struggles facing phone companies that are dependent on revenue from customers with landline phones, said Craig Moffett, an analyst with Bernstein Research. More consumers are disconnecting their home phone lines in favor of their cellphones or Internet telephone service. “This is a business that is in inexorable secular decline,” he said. “The wireline phone companies are doing their best to find synergies to preserve the economics of their business.”

Philip Cusick, an analyst at Macquarie Research, said: “All the wireline telecom companies understand their business is shrinking. The wireless industry is not a growth space either. This roll-up attitude could continue for a few more years.”

AT&T said Wednesday that it added only 512,000 wireless customers under contract, also known as postpaid subscribers, during the first quarter — down 43 percent from a year ago. Verizon Wireless said Thursday that it added only 423,000 customers under contract during the first quarter, down 55 percent from the period a year earlier.

Combining with Qwest would make CenturyTel the third-largest supplier of landline phone lines, trailing AT&T, which has 46.5 million wireline subscribers and Verizon Wireless, which has 32.6 million wireline subscribers.

But that number is expected to continue to contract, especially as consumers increasingly rely on cable companies for home phone service, said Roger Entner, an analyst with Nielsen Mobile. Comcast, for example, has 7.6 million residential and business phone subscribers, making it the fourth-largest landline provider in the United States.

“The idea is that consolidating the old telecommunications companies will help them better compete against cable,” Mr. Entner said.

The two companies began exploring a merger in the fall, Glen F. Post III, CenturyTel’s chief executive, said in an interview. He and his counterpart at Qwest, Edward A. Mueller, quickly decided that, with competition growing rapidly, combining their companies made sense.

“You’re going to see a lot more players in this space,” Mr. Post said. “This transaction really positions this new company to compete and withstand the challenges of this industry.”

Mr. Post said that while he was focused on integrating Embarq, which CenturyTel bought in 2008, and now Qwest, the company would continue to look at potential smaller transactions over the next few years. Among possible targets are companies that provide data-hosting or data-security services, he said.

With the Qwest transaction, CenturyTel will double its size through a deal for the fourth time. The third was Embarq, a landline services spinoff of Sprint Nextel. (After acquiring Embarq, the combined company rebranded itself as CenturyLink, though it is still legally CenturyTel.)

“The biggest challenge now for CenturyTel is figuring out how to compete against the cable companies,” Mr. Entner said. “They started offering their customers a full bundle of voice, wireline, Internet and television but obviously the cable companies are further ahead because that’s their core business.”

CenturyTel to Acquire Qwest in $10.6 Billion Deal