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CenturyLink Acquires Tier 3

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CenturyLink, Inc. (CTL) announced the acquisition of Seattle-based cloud service provider Tier 3. The financial details of the deal remain undisclosed. The acquired cloud platform from Tier 3 is now branded as CenturyLink Cloud. We believe that the acquisition will aid Century Link’s growing business in cloud services and be accretive to its enterprise business.

The news failed to influence the market and CenturyLink share prices did not register any remarkable change onTuesday and Wednesday trading.  

We expect the acquisition to be another step toward expanding CenturyLink cloud base subsidiary business, Savvis, which has contributed immensely in uplifting the performance level of the former through its cloud computing and managed hosting solutions for enterprises. In this regard, CenturyLink acquired Platform-as-a-Service (PaaS) provider – AppFog Inc. This acquired unit – which extends custom-made PaaS capabilities to software developers and public cloud services through www.appfog.com – will augment the product portfolio of Savvis.

We view this acquisition as a growth driver as AppFog's high-quality Platform-as-a-Service offerings along with Savvis' industry-leading infrastructure base will likely create a secure and reliable network for developing applications in the cloud. The company expects the new acquisition to complement CenturyLink's earlier acquisition of AppFog and existing cloud infrastructure including colocation, managed services and network offerings. CenturyLink also extended its partnership with VMware Inc. to introduce the vCloud Hybrid service in its North American Savvis Data Center.

CenturyLink continues to expand data centers this year with a view to generate higher revenues in collocation as well as managed hosting and cloud services. The company is on track to enlarge its global foothold with the expansion of data centers and plans to add 87,000 square feet of space within 2013. Considering the growing demand for services, the company inaugurated two data centers – one each in Hong Kong and London. Along with this, Savvis will expand other existing data centers in eight cities, namely, Boston, Atlanta, Dallas, Piscataway, Tampa, Washington, D.C., London and Singapore. With around 55 data centers spanning across North America, Europe and Asia, management aims to capture more businesses by increasing its data center wings in strategically suitable and secure locations, boosting interconnectivity within the company’s core operations.

However, stiff competition from other low-cost telecom operators like LEAP Wireless International Inc. (LEAP), significant integration challenges as well as higher operating expenses resulting from acquisitions may impede the company’s operating performance, going forward.

CenturyLink, which operates with carriers like Frontier Communications Corporation (FTR) and Telephone & Data Systems Inc. (TDS), currently carries a Zacks Rank #3 (Hold).

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