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Cloud Not Yet Raining Cash for CenturyLinkCloud Not Yet Raining Cash for CenturyLink

Hosting revenues, including cloud services, disappoint in Q4, but company execs see brighter days ahead in the second half of 2015.

February 11, 2015

3 Min Read
Cloud Not Yet Raining Cash for CenturyLink

CenturyLink isn't yet reaping major financial awards from its investment in cloud and hosting technologies, but company officials told financial analysts today that they remain confident of the company's strategy and expect to see better revenues this year.

After an earnings uptick in the third quarter pleasantly surprised analysts, CenturyLink Inc. (NYSE: CTL)'s core revenues were down 1.5% year-over-year in the fourth quarter, hitting $4.05 billion. CenturyLink defines "core" revenues as the combination of its legacy revenues with strategic revenues, which include high-bandwidth data; managed, hosted and cloud-based services for business; and IPTV for consumers. (See CenturyLink's 2014 Results Meet Expectations.)

For the year, core revenues were down six-tenths of a percent, an improvement over the 2013 record of a 1.3% decline.

That strategic revenue growth is mostly being driven by sales of MPLS and Ethernet services, high-speed Internet and CenturyLink's Prism TV service, noted Stewart Ewing, the company's EVP and CFO.

"Growth in hosting services including colocation, managed, hosted and cloud solutions was below expectations," Ewing said. "However, we believe the hosting opportunities remain strong as we improve the capabilities of our highly automated next generation CenturyLink cloud platform."

See the latest happenings as telecom business services migrate to the cloud in our cloud services section here on Light Reading.

Both Ewing and CEO Glenn Post stressed that CenturyLink's reorganization of its sales force, to combine network services and hosted services/cloud sales, is beginning to pay off, citing the addition of eight Fortune 500 firms as CenturyLink customers in 2014. The pair expect it to reap bigger benefits in 2015.

Post cited "mild disruption due to the reorganization," which included changes in sales leadership and sales plans, but said the current sales funnel "looks good right now" and CenturyLink is seeing "a lot of demand for our combined solutions: from both larger enterprises and SMBs."

CenturyLink COO Karen Puckett, who is now responsible for the combined sales staff, told analysts that the fourth-quarter revenues numbers were impacted significantly by the unexpected churning of one large colocation customer and that the company has a strategy for targeting customers coming off contract in the future. She warned, however, that the continued adjustment to the sales reorganization may mean a slower first quarter.

"Ask anyone in global sales and they will still say this is the right thing to do," she said.

Having ended the year with two significant acquisitions for its hosted and cloud businesses, CenturyLink is still looking to grow inorganically, Post admitted. "We will consider opportunities to expand network capabilities -- assets that would increase our metro fiber footprint -- those are the types of assets we'd be interested in looking at, and/or assets that would add data hosting/cloud and IT services capabilities," he said. (See CenturyLink Acquires DataGardens for Cloud Disaster Recovery and CenturyLink Acquires Big Data Firm Cognilytics.)

Post said CenturyLink is also cutting its costs by closing data centers and reducing headcount as it moves its own assets into the cloud as part of the virtualization of its own IT operations.

"I don't have a number to share -- we haven't really disclosed that, but we are expecting a significant ability to control our costs going forward," Post said, adding that CenturyLink is moving all its non-mainframe systems to the cloud. "We are closing data centers and reducing head count in those areas. There will be a lot of automation. We think the opportunities are significant to not just reduce current costs but control costs going forward with this virtualization."

"We are very confident in it," the CEO added. "We are going to drink our own bathwater here; we are going to do it ourselves. We think the opportunities are really significant."

— Carol Wilson, Editor-at-Large, Light Reading

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