Century Tel Gets The Hookup

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The telecom giants, AT&T (NYSE:T) and Verizon (NYSE:VZ), with their market caps of $141 billion and $80 billion, respectively, will no longer dwarf Century Tel in an industry where economies of scale are critical. Both AT&T and Verizon have remained highly profitable and project further profits, even in the ongoing awful economic climate. Their dominance is evidenced by their penetration not only into almost every conceivable market, but into so many business channels beyond fixed-line phone communication such as internet, even TV, via further alliances. An example is AT&T's bundled services utilizing its complex joint venture with Dish Network (Nasdaq:DISH). AT&T has also played the merger game to consolidate, get stronger and take out competitors, most notably the merger with SBC several years ago. That merger spread its regional influence and product diversity, and arguably reinvigorated the company into its even more highly profitable trajectory. (To learn more about mergers, check out the answer to our frequently asked question What is the difference between a merger and a takeover?)

Century Tel Not Standing Still
Century Tel has quietly added more to its system. By acquiring Embarq, it will add a company with similar strengths that should further bolster Century Tel with alliances and connections that bring more options for the Louisiana-based carrier. Embarq offers pay-per-view video services and wireless via a deal with Sprint Nextel (NYSE:S).

These strategic responses by Century Tel are necessary. Even in small- and mid-size cities where Century Tel operated relatively unencumbered by direct competition, players such as Time Warner (NYSE:TWX) with its Time-Warner Cable have extended their long tentacles into the bundled service wars. In addition, the satellite dish players (and AT&T has an alliance with Dish for its bundles) are ubiquitous, so the bundled-service battle has become fierce. Century Tel's own alliance with EchoStar/Dish now makes it a full-fledged player in the lucrative home television service space as well as for phone, internet and video. Century Tel's alliance with a satellite provider was necessitated by the incursion of such giants as Time-Warner into digital phone, as the stakes continue to get ratcheted higher in what used to be simply just telecom, but is now becoming the digital communication cage match.

Game On
To use an electronics metaphor, competition in telecom is omni-directional. The industry has metamorphosed so beyond the simple telephone that it is a dizzying arena of competitive worlds all bundled into one universe. Voice-over-internet phone (VoIp) competitors such as Vonage (NYSE:VG), though weak, are still around. Then there's Verizon, with its Verizon Wireless, which dominates that space and is in the direct three-way bundle competition for home services via DirecTV (Nasdaq:DTV). However, other wrinkles are there when you consider that some are now canceling their home phone to go mobile/cellular only.

Now as a full player in the home-bundle game, Century Tel must watch out for further assaults from cable operators such as juggernaut Time-Warner and satellite operators such as DirecTV. Yet the home telephone, the network of connectivity as both platform and launching pad for an array of related communication services, positions Century Tel well in the game going forward. The company has historically shown an astute sense of managing its resources, responding to competitive challenges. As this industry shows - one of the few healthy industries in this weak global economy - there are strengths and potentials down the road near-term and longer to make a lot of money in what is a dynamic, forward-looking, rapidly changing industry.

Bottom Line
Though its stock price currently sits at $26, off its 52-week high of $40, Century Tel should be in place to perform even better than it has in the past, and the stock should be worth considerably more in the next few years on that basis.