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CenturyLink Reaches Settlement With FCC Enforcement Bureau

Zacks Equity Research

Per media reports, CenturyLink, Inc. CTL has reached a payment settlement with the Federal Communications Commission’s (FCC) Enforcement Bureau (EB). The EB is the primary FCC unit responsible for enforcing the provisions of the Communications Act, the Commission’s rules, and various licensing terms and conditions.

The EB resolved an investigation into the communications company’s placement of unauthorized third-party charges and fees onto consumers’ bills. This practice, known as cramming, is unjust and unreasonable under the Communications Act. CenturyLink has agreed to pay $550,000 to the U.S. Treasury and has committed to a compliance plan designed to protect consumers and prevent future cramming.

CenturyLink stated that the third-party charges were put on the bill in a bid to make things convenient for customers. During its investigation, the EB reviewed complaints from CenturyLink’s customers. Consumers stated that they discovered unauthorized third-party charges on their bills and, in some cases, had difficulty getting timely refunds.

The company has agreed to cease billing for third parties, with certain narrow exceptions, and to implement a process for providing refund or credit to customers with valid complaints about unauthorized charges.

The company will also allow customers to block future third-party charges and have available upon customers’ request all recent billing information related to third-party charges. In addition, CenturyLink has committed to revise its processes and conduct staff training to avoid any further placement of unauthorized third-party charges on customers’ bills.

Core Focus

The ongoing expansion of CenturyLink’s network capabilities and fiber reach, including deployment of the world’s largest ultra-low-loss fiber network, augurs well for future growth. Along with investments, the company is focused on profitable revenue while digitally transforming itself through improvement in customer experience and streamlining operations for employees. It believes the scale of its global assets alongside innovative product portfolio to be accretive to earnings. It is working with customers to enable their 5G roadmaps while extending its fiber footprint.

Owing to a decent first half of 2019 in capturing synergy together with cost-transformation and de-leveraging efforts, CenturyLink has reiterated its full-year 2019 financial outlook for adjusted EBITDA and free cash flow. It continues to expect adjusted EBITDA of $9.00-$9.20 billion. While free cash flow is expected in the range of $3.10-$3.40 billion, free cash flow after dividends is projected between $2.005 billion and $2.305 billion.

Further, CenturyLink remains confident in its ability to meet its de-leveraging objectives and reaching the target leverage range of 2.75x-3.25x (net debt to adjusted EBITDA) within the next three years backed by healthy business fundamentals. The company intends to return significant value to shareholders while investing in revenues and EBITDA growth drivers.

CenturyLink has long-term earnings growth expectation of 8.7%. The stock has lost 24.2% against the industry’s growth of 10.4% in the year-to-date period.

Zacks Rank & Stocks to Consider

CenturyLink currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are United States Cellular Corp. USM, Verizon Communications Inc. VZ and Nokia Corp. NOK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

U.S. Cellular surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 38.3%.

Verizon surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 2.6%.

Nokia surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 89.3%.

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