Although CenturyLink Inc. is now facing class-action lawsuits in a number of states in connection with its billing practices, CenturyLink President and CEO Glen Post said the company continues to make good progress on obtaining the necessary state approvals for its pending Level 3 Communications Inc. acquisition.
"We now have clearance from 23 states and territories with two additional state approvals needed," Post said during an Aug. 2 earnings conference call, adding, "We continue to work diligently toward receiving the remaining state and federal approvals in order to close by the end of September."
Presently, the deal has been approved by regulators in Alaska, Colorado, Delaware, Georgia, Hawaii, Maryland, Minnesota, Mississippi, New York, Ohio, Pennsylvania, Utah, Virginia and West Virginia as well as the District of Columbia. It also received regulatory clearance from Connecticut, Indiana, Louisiana, Montana, Nevada, Texas, Washington and Puerto Rico.
CenturyLink in 2016 agreed to buy Level 3 Communications in a transaction valued at about $34 billion.
At the same time that CenturyLink is working to get the necessary state approvals, the company is facing lawsuits in a multitude of states, with the charges generally centered on claims that the company charges higher rates than its sales agents quoted to users for internet and cable services.
Post said the litigation traces back to a former CenturyLink employee filing a wrongful termination lawsuit that alleged the company charged some customers for products and services they did not authorize. "Now that claim quickly escalated," Post said, pointing to the suits filed in various states, including Minnesota. Suits have also been filed in Arizona, Colorado, Idaho and Washington.
"We are limited in the things we can say while litigation and investigations are pending, but I do want to be very clear that the allegations contained in these lawsuits are contrary to everything I believe we stand for as a company. They do not represent our values, our principles or our commitment to always try to do the right thing in running our business," Post said.
In reaction to the litigation, Post said CentuyLink's board appointed a special committee and hired a law firm to conduct an independent review. "This decision was made immediately after learning about the initial lawsuit, not because there was evidence of wrongdoing but because we wanted to be sure that our board had an independent view of these issues," Post said.
In addition, CenturyLink Consumer Markets President Maxine Moreau said many of the customer complaints the company has seen involve complicated billing and pricing policies. As a result, the company has been working to simplify its bills and pricing offers.
Post said the board's independent review is not expected to be completed until the fourth quarter. "Sometimes we do make mistakes just like anyone else, but suggestions that we defrauded our customers were against everything that we strive to be as a company," the CEO said.
In terms of the company's second-quarter results, CenturyLink's second-quarter net income fell to $17.0 million, or 3 cents per share, from net income of $196.0 million, or 36 cents per share, in the year-ago period. The drop was due in a large part to one-time charges related to the May sale of CenturyLink's data centers and colocation business. Adjusted to exclude the after-tax impact of special items, CenturyLink's net income for second quarter was $251 million, or 46 cents per share, compared to adjusted net income of $342 million, or 63 cents per share, in the year-ago period.
The second-quarter S&P Capital IQ consensus EPS estimate was 25 cents on a GAAP basis and 49 cents on a normalized basis.
Revenue for the quarter ended June 30 was $4.09 billion, down 7.0% year over year from $4.40 billion. CenturyLink said the revenue drop was due in part to the colocation sale, though consumer segment revenues were down 6.2% year over year due to a decline in legacy voice revenues, as well as lower broadband and video revenues driven by increased cable competition and the impact of the restructuring of a satellite video contract.
For Level 3, total revenue for the second quarter was $2.06 billion, roughly flat with the year-ago period. The company generated net income of $154 million, or 42 cents per share, down slightly from 156 million, or 43 cents per share, in the prior-year period.