Expect to see more of this: Regional phone companies teaming up to squeeze out every possible scale advantage as they decline in relevance. This morning, CenturyTel (CTL) announced it was picking up Embarq (EQ) for $5.8 billion in stock and will assume $5.8 billion in debt. (Sprint Nextel (S) spun Embarq off 2.5 years ago to focus on its wireless business.)
Good move? Probably. But the companies have two big market trends working against them:
- Americans are cancelling their home phone service for either wireless-only service or Internet phone service from cable companies. Neither CenturyTel nor Embarq owns its own wireless business. But CenturyTel spent $149 million in the FCC’s last wireless spectrum auction for airwaves in its service footprint that can be used to offer wireless Internet, phone, and video service as early as next year.
- Most new broadband subscribers are opting for cable modem service, which is faster than the DSL service offered by CenturyTel and Embarq. CenturyTel added 20,600 broadband subscribers during Q3, down from 29,000 during Q3 2007. Embarq added 24,000 broadband subscribers during Q3, down from 60,000 during Q3 2007. It also lowered revenue guidance for the rest of the year.
Either way, probably better together than alone. But CenturyTel shareholders are running away screaming: Shares are down 13.9% to $25.39, while Embarq shares are up 3.3% to $30.71.