2015 Summary Annual Report and 2016 Annual Meeting Documents And
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and 2015 Summary Annual Report 2016 Annual Meeting Documents CenturyLink 2015 Summary Annual Report and 2016 Annual Meeting Documents Our Global Network NORTH AMERICA Core Fiber Local Territory Data Center CenturyLink® Prism® TV Market EUROPE ASIA PACIFIC To Our Shareholders This is a time of significant challenge but great PATHWAY TO GROWTH opportunity for our company. We enter 2016 with a renewed and energetic focus on our fundamental During 2015, we grew revenues from business mission: to improve our customers’ lives by connecting high-bandwidth data services, consumer high- them to the power of the digital world. speed Internet services and other strategic services by over $500 million, a 9.2 percent growth rate. CenturyLink is well-positioned to take advantage of Demand for these services is expected to continue to the outstanding opportunities the digital revolution is increase in the coming years. For example, industry creating around the world. We have the assets and the analysts project that Ethernet demand will grow at people necessary to deliver critical broadband capacity an annual compounded rate of eight percent through and related services to meet the increasing demand 2020. Likewise, demand for managed security and for speed and new applications. We also have the managed network services is expected to grow at financial strength to continue to invest in our business an annual compounded rate of 10 percent during while returning cash to shareholders at attractive and that same period. Finally, demand in consumer and sustainable levels. business broadband is strong and expected to continue its growth through 2020. Making the proper long-term decisions in this rapidly changing environment is crucial. Customer These are all services we are provisioning today and, expectations are growing; technology is rapidly in many cases, we are under-penetrated relative to the advancing; and we face strong competition on market. We believe we have good opportunity to grow multiple fronts. Long-term success in this our broadband access revenues, and we expect to environment of change will require continued continue to expand both the reach and capacity of our improvements to our team, network, systems and network while improving the scale and efficiency of our service delivery capabilities. direct and indirect business sales channels. We are actively making the changes necessary to Broadband access represents the core of our enable us to fulfill our commitments to our customers, value proposition, but our business customers our shareholders and our employees. While the pace are also frequently interested in a broader suite of this change can be trying, we believe there is good of managed, IT and data analytics services. reason for optimism in our pathway to growth and in CenturyLink is well-positioned to deliver this range the future for our company. of access, managed and IT services our business customers demand. While these new service offerings do not generate the same margins as our network business, their high growth rates and lower capital requirements give us a good opportunity to grow revenue and improve our overall return on invested capital. 2015 SUMMARY ANNUAL REPORT AND 2016 ANNUAL MEETING DOCUMENTS 1 To Our Shareholders continued Glen F. Post, III Chief Executive Officer and President We have a deep and improving asset base. At year- We have the financial strength to both invest end 2015, 30 percent of our markets were enabled for the future and return cash to shareholders with speeds of 40 megabits per second (Mbps) or at attractive and sustainable levels. Over the last faster — a speed that addresses the vast majority of several years we have invested an average of about our customers’ needs — with many markets capable $3 billion a year in our business, principally to expand of receiving 100 Mbps and higher. We have also the speed, reach and capacity of our network and to enabled fiber-to-the-premise for about 500,000 enable our cloud, managed hosting and colocation businesses and nearly one million households, making businesses. We expect to continue this level of CenturyLink one of the largest gigabit service providers investment over the next several years, focused in the country. primarily on continuing broadband expansion; increasing our software-defined networking (SDN) As we move into 2016, we are committed to increasing and network function virtualization (NFV) capabilities; the market competitiveness of our broadband access creating cloud-based, customer-driven service delivery service offerings. We will continue to expand both our platforms; and investing in CAF Phase 2 markets. gigabit-capable footprint and the number of customers able to receive speeds of up to 100-200 Mbps through We balance our capital investments with our bonding and vectoring technologies. Additionally, by philosophy that the return of cash to shareholders is an investing the approximately $500 million per year we important part of our value proposition to investors. For will receive in each of the next five years from the 2016, we project our dividend payout ratio to be in the federal Connect America Fund (CAF), we will bring 60–70 percent range. Although we expect that payout high-speed Internet service to approximately 1.2 million ratio to increase over the next couple of years, we rural businesses and households. believe we can maintain our payout ratio at sustainable levels going forward by balancing our capital program In addition to the reach and speed of our network, with our operational performance. we are enabling competitive video options for our customers. We ended 2015 with more than 3.2 million This combination of growth opportunities, financial addressable Prism® TV homes, and we are currently strength and the consistent return of cash to our developing an over-the-top video offering to provide a shareholders makes CenturyLink a compelling web-based, more dynamic and less-capital-intensive investment opportunity. video offering to a greater percentage of our total customer base. We currently have only a small share FOCUS ON EXECUTION of the video market in our territory and believe we can significantly grow market penetration for However powerful our assets, opportunities and these services. financial profile may be, we must also improve our execution to deliver on our commitments. The leadership and organizational changes we have made 2 CENTURYLINK This combination of growth opportunities, financial strength and the consistent return of cash to our shareholders makes CenturyLink a compelling investment opportunity. over the past eighteen months are part of that focus network, connect VPNs and MPLS connection points on improved execution. In addition, we have declared and order additional video, security and network the following key operational objectives to drive management services, all with the convenience of outstanding performance and an exceptional direct credit card billing. This is the type of automated, customer experience. customer-driven service model in which we are investing for the future. We will maximize market penetration of enabled network and adjacent services. We have to drive We will invest with discipline and a network-first higher levels of revenue growth to support the focus. Our renewed focus on providing best-in- investments we are making in our business. As class broadband access is reflected in a refreshed we move into 2016 and beyond, we are renewing approach to our capital investment program. Network our focus on reducing churn among our existing enablement has always been our principal focus, but customers and more deeply penetrating the market over the last several years we have also invested in our with the products in which we have already invested colocation business and strengthened our cloud and and enabled. We expect these efforts to enhance our managed services capabilities. growth and improve our return on invested capital. For CenturyLink, the greatest potential returns on our We will create exceptional customer experiences. capital investments are in building and delivering the Better execution is about more than our service broadband service and capacity in our markets, and capabilities; it also requires that we provide an our commitment to balance capital investment with excellent customer experience. Our near-term focus return of cash to our shareholders means that we must on improving the customer experience is aimed at prioritize investments in areas where we believe we reducing the interval between the time of sale and the can drive the greatest returns. However, we continue time we deliver service to our customer. Extended to believe that cloud-based product offerings and intervals can create poor customer experiences, service delivery platforms are also critically important increase churn and challenge our ability to grow. We to our future. have teams dedicated to significantly reducing these service intervals in 2016. We will continue to invest in the cloud platforms that enable the managed private cloud services that our Longer term, we envision a future where the business customers demand as well as those that procedural provisioning and management of the represent the foundation of the automated customer services we deliver are automated and self-service. service offerings we believe will drive an exceptional One early example of realization of that vision is our customer experience. We are also developing less “CenturyLink On” product. This service enables capital-intensive growth opportunities through customers in multi-tenant environments to use their expansion of our managed and IT services businesses own devices to establish access to our broadband and partnering for delivery of many cloud-based 2015 SUMMARY ANNUAL REPORT AND 2016 ANNUAL MEETING DOCUMENTS 3 To Our Shareholders continued services. This approach will allow us to focus our We are eager to deliver on the promise we see in the investment where we have the best opportunity to future of our company, and we appreciate your support compete while still delivering the full range of services as we work to drive CenturyLink’s growth and success that our customers expect.