Analyst Cites FCC 'Overhang' as CenturyLink/Telco Special Access Margins Face 'Squeeze'
The FCC special access push creates "potential headwinds" for some telcos, said Wells Fargo analyst Jennifer Fritzsche, citing the proceeding as one reason for her downgrade of CenturyLink to "market perform" this week. She said CenturyLink "could see an impact…
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(+$2B access revenue)" from possible FCC regulatory changes, given the "very high margin" in the last-mile portion of special access (business data service). "If the FCC sides with the likes of [Level 3], Sprint, and now [Verizon], it is hard not to see this revenue and margin facing a bit of a squeeze," she wrote in a note Tuesday. Updating her views Wednesday after the company's earnings call, Fritzsche said management acknowledged special access is "high margin" with little to no maintenance costs. "While we acknowledge there are still many unknowns here, there is no doubt this is becoming a part of the regulatory focus for investors and could serve as a near term overhang on those names with special access revenue exposure," she wrote, calling CenturyLink's earnings (here) "in line" with expectations accompanied by "solid" free cash flow generation, but with "cautious" 2016 guidance. Cincinnati Bell (here), Cogent Communications (here), Consolidated Communications (here), FairPoint Communications (here), Frontier Communications (here) and Windstream (here) also reported quarterly earnings this week.