CenturyLink-Qwest Merger: Implications for UCaaS

This $18.8 B merger, which closed earlier this month, provides CenturyLink, a company with predominately rural and small business clients, an opportunity to expand its local rural footprint and also add in a number of medium-large business accounts (via Qwest).   Qwest has a good reputation for flexibility and project implementation-particularly in supporting medium sized organizations (200-999 employees).   Its comparatively greater success in this segment is one of several primary drivers for CenturyLink’s merger interest.  Thus, apart from an upcoming name change to CenturyLink Business, CenturyLink intends to operate Qwest’s medium-large business customer segment largely as is (under Business Markets Group President Chris Ancell).  Smaller businesses will fall under the auspices of the legacy CenturyLink Regional Markets organization.  Small business have been a big opportunity for (legacy) CenturyLink- according to its FY 2010 10K, 33% of its access lines serve business customers (approximately 2.145 M lines).

Regarding UC as a Service (UCaaS), Qwest has met with some good early success offering a dedicated/hosted UC Service to large customers like universities and state/municipal governments.  The company has also profited from its relationship with Shoretel (IP PBXs targeted to small and small to medium-sized businesses).  But regarding a SMB UCaaS offer, both providers’ current services are very key system-like.   They require UCaaS product enhancements, such as:

  • Connections into Qwest’s SIP trunking service (CenturyLink’s portfolio essentially lacks this)
  • Integration with IP and web audioconferencing services
  • Managed/hosted SIP/VOIP security services/SBCs
  • Through UC partners like Microsoft, access to Lync or Office 365
  • Network-based presence and location engines (see preceding point)
  • Integration with IP/legacy videoconferencing bridges and services.

It’s important that to note that not all of the above laundry list need be supplied in-house.  Tight partnerships can quickly fill the void in several cases, such as in conferencing.  Additionally, since both companies use different IP centrex platforms, I think Broadsoft will be the likely going-forward vendor.

A related opportunity the company should address is fixed mobile convergence (FMC).  When combined with the resale of Verizon Wireless service, CenturyLink Business can offer an FMC service (for instance, via Broadsoft and specialist partners like MobileMax).  The opportunity is potentially great, because the combined company’s business customer base is predominately small business.  A UCaaS-based FMC service could take the small business world by storm, especially when offered as a predominately/purely mobile (vs. hybrid fixed/mobile) solution.    However, both companies lack relevant in-house FMC expertise, which is essential.   Top CenturyLink executives have made multiple mentions of additional acquisitions or partnerships, so it’s likely to fill the gap through this means.  CenturyLink might want to take time ‘digesting’ the Qwest merger, but can ill afford to do so because AT&T’s planned acquisition of T-Mobile US took one of the few remaining prospective mobile partners out of circulation.

CenturyLink’s future viability as a vibrant UCaaS SMB supplier rests on the issues outlined above.  No major carrier’s UC product or service has yet taken the SMB world by storm.  But sooner or later, someone will break out.  The question for CenturyLink – will it seize this opportunity while it still exists?

Leave a Reply