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CenturyLink Confirms CWA Contract

Zacks Equity Research

CenturyLink Inc. (CTL) announced that the company has penned a tentative agreement with Communications Workers of America (:CWA) District 7 for further negotiations on the contract. The company is also in talks with the International Brotherhood of Electrical Workers (:IBEW) Local 206 for reaching an agreement, the negotiations wherein are expected to be concluded in the coming weeks.

The company in its press release stated that the new agreement with CWA provides fair and equal benefits to both the parties that will help drive better services for its customers. The agreement addresses several issues related to employees' wages, pensions and health care benefits. Resolving these issues would improve employees' productivity, subsequently benefiting the company.

Approximately 39% of the company’s employee base is covered by the Communications Workers of America and the International Brotherhood of Electrical Workers. We believe any failure on the company’s part to negotiate favorable collective bargaining with the workers may result in higher labor costs and work disruptions, including work stoppages or slowdown. Further, new labor agreements might impose additional costs on the company, leading to a stressed financial condition and weak operations in the future.

Alongside worker union issues, the integration of Qwest operations with CenturyLink will also pose certain headwinds going forward. The company expects the integration of these companies to result in higher operating costs over two to four years. CenturyLink has to integrate several systems and procedures including re-branding, billing, management information, purchasing, payroll and benefits, fixed asset, lease administration and regulatory compliance. In addition, the combined company will have to expand its services to large urban areas where CenturyLink has limited operating experience.

Further, we believe stiff competition from other low-cost telecom operators like LEAP Wireless International Inc. (LEAP) Frontier Communications Corporation (FTR) and United States Cellular Corporation (USM), regulatory issues and the constant need for technology upgrades may impede the company’s operating performance going forward.

CenturyLink carries a Zacks Rank #3 (Hold).

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