Embarq spins off, shares sink as investors consider a fixed future

Phil Harvey, Editor-in-Chief

May 19, 2006

2 Min Read
Is the Future Dark for Embarq?

Shares of Embarq Corp. (NYSE: EQ) fell $1.65 (3.63%) to $43.79 on its trading debut yesterday as the company spun off from Sprint Corp. (NYSE: S) and investors mulled the prospect of life without a wireless growth story to boost profits and expectations.

Investors holding Sprint stock got one Embarq share for every 20 shares of Sprint they own, thus completing the spinoff. Embarq mainly comprises the former Sprint Local Telecommunications Division and Sprint North Supply groups. The company employs about 20,000 people, and is the fifth largest U.S. carrier, with more than 7 million access lines.

The bad news is that wireline voice, Embarq's biggest business, is under fire from all sides. And though the company bundles a satellite TV service from EchoStar Satellite LLC and resells Sprint wireless services, it has hardly any video aspirations and has to split the revenues from each bundle it sells three ways.

"While AT&T and Verizon are investing significant capital in fiber infrastructure to support wireline video in some markets, Embarq does not currently view wireline video as economically feasible and will rely on the resale of satellite for their video component," writes A.G. Edwards analyst Kent Custer, who initated coverage on Embarq on Thursday.

Consumers will note that Embarq's bundling plans are nothing remarkable, especially given that Sprint is also boosting the cable companies via a joint venture between the carrier and the MSOs. (See Cable Firms, Sprint in Fixed/Mobile Deal and Sprint: Still Going Beyond 3G.) Thanks to that joint venture, and the fact that the cable companies provide their own video services, the MSOs will be able to offer more services on a single bill than Embarq.

But Embarq is taking a liking to the technologies that compete with its wireline assets. For instance, the company is trying out citywide WiFi services in Henderson, Nev., in the hope it can find an effective way to compete with its cable rivals in the high-speed data market.

Indeed, with no sexy access story to tell -- and no wireless unit to pad profits -- Embarq is betting big-time on its ability to sell more high-speed connections. It reached about 777,000 customers with high-speed lines as of March 31, and the company expects that will increase by 40 percent in 2006.

While the profits from that boon won't roll in immediately -- it costs a lot to entice high-speed data customers, hook them up, and support them in the early days -- analysts see that broadband growth goal as a key indicator of how Embarq will fare as a standalone.

"We view the guidance of a 40 percent increase in HSI [high-speed Internet] lines the most important deliverable for 2006," writes Custer. "Any shortfall in this area would be cause for concern."

— Phil Harvey, News Editor, Light Reading

About the Author(s)

Phil Harvey

Editor-in-Chief, Light Reading

Phil Harvey has been a Light Reading writer and editor for more than 18 years combined. He began his second tour as the site's chief editor in April 2020.

His interest in speed and scale means he often covers optical networking and the foundational technologies powering the modern Internet.

Harvey covered networking, Internet infrastructure and dot-com mania in the late 90s for Silicon Valley magazines like UPSIDE and Red Herring before joining Light Reading (for the first time) in late 2000.

After moving to the Republic of Texas, Harvey spent eight years as a contributing tech writer for D CEO magazine, producing columns about tech advances in everything from supercomputing to cellphone recycling.

Harvey is an avid photographer and camera collector – if you accept that compulsive shopping and "collecting" are the same.

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