SMALL TOWN CARRIER, BIG APPETITE

In the Monroe, La., headquarters of CenturyTel, the office of Clarke Williams sits empty and locked. Inside, the longtime chairman's workplace is pretty much as he left it just a few months before he died on June 5, 2002. With a candlestick phone still sitting on the credenza and the papers cleaned off the expansive desk, the office could pass as a museum piece for the modern workplace, circa anytime in the last 25 years.

Even now, when employees and fellow executives speak of Williams, it's in the kind of reverential tones typically reserved for those in high positions of moral authority. The whole setup might seem a little hokey, especially in today's corporate environment, where CEOs are routinely vilified — even by their own employees. But in many ways it speaks to the very nature of what CenturyTel has become since 1946, when Williams took over a 75-customer telco with a single exchange.

CenturyTel is still to a large extent a small-town telco: When Monroe's population of 53,000 is combined with the 13,000 or so in West Monroe, it comprises one of the largest “metro areas” the company serves. Even so, CenturyTel ranks as the eighth-largest operating company in the U.S., serving more than 2.4 million access lines scattered across 22 states. It has become a mover and a shaker by focusing on serving the rural local voice customer, a market that typically gets about as much attention as the Professional Bowlers Tour.

“We expect to stay in the small to mid-sized city areas,” said Glen Post, CenturyTel's chairman and CEO. “We understand those markets.”

Post, who began his career with the company the same year Jimmy Carter was elected president, speaks in an easygoing manner that suggests he could take all your money in a poker game, and you'd still feel good about it. Beyond the peaceful demeanor, though, is an executive who can get aggressive when necessary.

Among Post's most forceful moves was the acquisition of more than 900,000 access lines from Verizon Communications, spread across two transactions together valued at almost $3 billion in cash. And in 1997, the company made what President and Chief Operating Officer Karen Puckett called “the move that put CenturyTel on the map” by purchasing Pacific Telecom, gaining 660,000 lines in 12 states.

Post may not be done, either: In a recent speech at a Banc of America Securities conference, he said that CenturyTel, which reported $18.7 million in cash at the end of March, expects an opportunity for another major acquisition in the next 24 months, most likely from one of the Bell companies continuing to divest their rural assets.

“We could handle another mid-sized acquisition with the condition our balance sheet is in now,” said R. Stewart Ewing, CenturyTel's chief financial officer.

Wall Street, which has spent the past few years cozying up to the two dozen or so publicly traded rural telcos, may be ready for the move. Many analysts believe a company like CenturyTel is in the perfect position to emerge among the dominant players in the wireline rural market. “We believe the access line aggregator model is continuing to show traction,” wrote Frank Louthan, vice president of equity research for Raymond James, in a report issued earlier this year.

Leading much of that charge will be Puckett, who is as outwardly different from Post as two executives in the same office can be. If Post is the relaxed head of the company that will be the public face of that move, Puckett is the counterbalance that always appears to be contemplating the next task ahead. And aside from being the rare woman in the top operating spot of a telco, Puckett also isn't a Louisiana native, a commonality shared by many of the CenturyTel executives.

Following her appointment to the COO post in 2000, Puckett almost immediately set about reorganizing the executive structure of the company to put more power in the hands of local general managers, a move that has paid off for both DSL penetration and in staunching any loss of lines to emerging competitors. At the same time, Puckett led the divestiture of the company's wireless properties to Alltel, a move that was pivotal in extracting the company from a nasty dispute with the Arkansas carrier, which had proposed a hostile takeover.

The Alltel deal also gave CenturyTel enough cash to buy Digital Teleport Inc., a regional fiber carrier with a 4900-mile network throughout the Midwest. That transaction, which closed last week, appeared on the surface to be just another distressed asset sale: DTI was in the midst of bankruptcy, and its holdings pushed CenturyTel into the already crowded backbone carrier business.

However, the move could be far more significant than meets the eye, giving CenturyTel the bandwidth necessary to take advantage of some of telecom's few growing areas, such as wireless and voice-over-IP traffic, as well as developing its expanding long-distance customer base, which grew 33% over the last year. The fiber could also be used to provide transport for high-bandwidth services, including video.

It also helped that DTI — which went into Chapter 11 with listed assets of $393 million — was picked up for just $38 million. “DTI's [market] is where we need to be right now,” said Ewing. “We're paying others for capacity right now. But with a little bit of capital dollars, we can reduce that cost. And in order to roll out new services like video, we're going to need more bandwidth.”

Speaking of video, CenturyTel may be on the verge of joining the most significant players in the market. According to numerous vendors, the company is set to select equipment providers for a small commercial video rollout, followed by a more extensive deployment.

If true, the move would represent a significant turnabout. In February, Post said the company was looking at VDSL-based video systems but wasn't convinced of the economics. “It works today from a technology perspective, but to make it scalable and make it a major part of our future, [vendors] are just not there yet on economics,” he said at the time. “The real key is getting one of the Bell companies behind it. That's what really drives down prices.”

Officially, CenturyTel has been testing a VDSL-based system in LaCrosse, Wis., for several months. It also has a small investment in satellite retailer DishNet, though that likely won't play into the carrier's plans. However, recent renewed interest by other large telcos in video, the creation of the ADSL2+ standard and developments in Asia may have helped bring the costs down to a point that it makes economic sense to deploy.

“We believe there are some advances that have taken place with the video vendors that make it work in our market,” Post said in late May, noting that the company established a team in the last couple of months to look at the “triple play” option of providing voice, data and video all over the same network. “The biggest issue is the price of the technology. As we see more telcos move into the market, it's going to bring that cost down.”

Should CenturyTel make the jump, it would become not only one of the most significant telcos to move into video, it could provide a test case for RBOCs to watch, said Christopher Coles, president and CEO of video middleware vendor Myrio. “As soon as they deploy, they instantly become the leaders in the market,” said Coles, who previously was president of Qwest Communications' Video Services Group.

Before that happens, though, the carrier is beginning a more concerted push into the overall broadband market. In the first quarter of this year, CenturyTel added 7700 DSL customers for an overall total of more than 60,000. When viewed in the context of the number of overall access lines served, those customer metrics probably won't attract much outside attention. But they serve as proof that the company can hold its own against the cable modem providers that have been aggressively expanding in some of CenturyTel's markets.

“Competition certainly will drive the initial rollout of any broadband offerings,” Post said. “More important, we'll be looking at the demographics and how it fits with the cost of the technology.”

Indeed, cost appears to be at the center of every move and thought. While many of the largest carriers are toying with creating specialized content to attract and retain broadband subscribers in the big cities, CenturyTel is focused almost obsessively on pricing. In the new organization, local managers are giving significant leeway to price DSL service based on local market conditions.

“We start with a cross-system pricing, but then we allow our managers to vary that,” Post said. “We really try to push the decision areas as far down to the region area. What's good for Alabama is good for Louisiana.”

Going forward, the company likely isn't going to set any speed records for advanced technology deployment or turn heads with flashy marketing campaigns. Instead, CenturyTel seems content to play the role of the tortoise — a wise move in a market that has seen far too many hares become road kill.