The Threat Of Substitutes

Published Date: 02 Nov 2017

PESTEL is an acronym that stands for Political, Economic, Social, Technological, Environmental, and Legal. Sometimes called a PEST or PESTLE analysis, these analyses are normally used to determining the opportunities and risks that come from of a company’s global expansion. This PESTEL analysis will cover the CenturyLink Corporation, who is a global broadband and telecommunications company. CenturyLink is always expanding into new markets, showing why this report is beneficial for future success and the company’s potential for future global expansion.

Political

CenturyLink uses some of its corporate funds for political spending, but does not disclose this information publicly or any of the details of this spending. The company also does not disclose its memberships to any trade associations or the payments made to them or any other groups used for political purposes. This type of accountability could expose the company to reputational business risks that could threaten the value of shareholders stock. "More than 85 companies in the S&P 500 are committed to nondisclosure of their political spending habits." (Transparency & Accountability Report, 2011). CenturyLink spent approximately $709,000 on political activities from 2002-2011 with almost two thirds being spent during the 2010 election cycle. Exact figures are difficult to determine because companies are not required to disclose political expenditures. CenturyLink completed a merger with Qwest Communications, forming the third largest telecommunications company in the United States (CenturyLink, 2013). Qwest had spent nearly $4 million on political candidates and political committees during this same time. CenturyLink has dramatically increased its political spending during the 2010 election cycle, contributing approximately $152,000 in 2009 and $268,000 in 2010. CenturyLink’s political contributions increased to more than $1,230,839 in 2012, this is due to a recent Supreme Court decision. A U.S. Supreme Court decision made in January 2010 in the case of Citizens United vs. Federal Election Commission caused an overturned of several long-standing restrictions limiting the amount a corporation could spend on political contributions. The SupremeCourt’s decision struck down part of the Tillman Act of 1907 that limited corporate political spending. Under this new ruling companies can spend an unlimited amount of corporate funds to support or oppose candidates as long as they do not coordinate these efforts with such candidates. Companies are still prohibited from contributing directly to any political candidate.

Economical

CenturyLink is a 25 billion dollar company that has a total of 54.02 billion dollars in assets. Even though at first glance CenturyLink seems like they have a bright future and doesn’t have to avoid any obstacles but that would be inaccurate. The market of telecommunications is slowly moving from telephone lines to wireless even though they are less secure. Due to this happening CenturyLink’s revenue has dropped roughly 27 million dollars. And the reducing number of telephone lines is causing this dip in revenue. The stock prices have depreciated a short time after the acquisition of Qwest Communications. To keep their customers happy, CenturyLink offered a bundle that offered video services. And to keep their investors content they offered their shareholders a large dividend. This is a major obstacle that CenturyLink will be forced to deal with in the near feature. Because of the decline in revenue it is going to become difficult for CenturyLink to still offer the large dividend. This can result in many people selling their shares because of the bundles will be taken away from the shareholders. Although CenturyLink is a relatively successful company this will be a major blow to their loss in revenue. Once the shareholders start selling it will leave CenturyLink with a decision to try and make up the revenue loss in the recent years.

Socio-Cultural

CenturyLink appeals to the masses due to the fact that they have the largest span of fiber optic cable compared to every competitor. This allows them to serve to serve 37 states throughout the United States. Due to their acquisitions of other companies in its recent years, it allows them to provide internet services, digital television, and wireless services. They have also doubled the number of network access points after they acquired Qwest Communications. This allows customers to have many options when choosing CenturyLink. This is an advantage for CenturyLink because they have acquired companies that have allowed them to expand their horizon.

Since CenturyLink uses fiber optic cable this allows them to be one of the most secure companies compared to their wireless and copper wire competitors. This is because Fiber optic cable does not use a traditional way of transferring signals. Fiber optic uses light over electricity when transmitting its impulses. To tap fiber optic cable you will require specialized equipment that is uncommon and very expensive to acquire. This allows their customers to feel a sense of security knowing that their personal information is not in jeopardy of being invaded through CenturyLink’s services. The customers of CenturyLink can be confident that they will not be forced to switch service providers due to CenturyLink being bought out. This is very unlikely since CenturyLink’s massive customer base and their success of having such a large of amount of fiber optic cable. CenturyLink does not have any competitors that have the finances that would be capable to buy out their company.

Technological

CenturyLink is a local exchange carrier and provides internet services to 37 states. CenturyLink has recently released its PrismTv that offers cable television without using a satellite dish. The idea of PrismTv is more reliable than using the traditional satellite dish. Satellite Dish’s are prone to have more complications due to how easily weather can affect the dish’s connection. The reliability of dish free cable is becoming more popular among people due to the fact that they will have fewer interruptions while watching television.

Environmental

CenturyLink is always seeking new ways to preserve our environment through the deployment of green information and communications technologies. In order for a corporation to stay green in today’s environmentally aware society they must normally rethink many business practices. From the environmental protection agency or EPA perspective, power management must be applied at every stage of their operation. Office administrators maximize the use of company hardware and software; by standardize energy management systems to enabling employees to do their jobs well and proficient. CenturyLink uses "tools that support a lower-cost energy model, including enabling employees to work remotely" (CenturyLink, 2013). The company focuses on 3 main areas to reduce their energy consumption: built-in energy efficiency, resource optimization and virtualization technology. For example, whether an operating systems should go into hibernation mode when not in use. This power management features alone can save up to $50 or more per computer per year. Another way the company cuts cost while optimizing resources is through software coding made to be more efficient and less demanding on the systems. "Many industry experts say virtualization can help reduce the need for CPU by more than 15% on average. Virtualization allows administrators to run multiple applications or multiple systems on single servers to reduce hardware requirements and overall energy costs" (CenturyLink, 2013).

Legal

CenturyLink has many different legal aspects that affect their business on a day to day basis. Some of these include but are not limited to; acceptable use policies, privacy policies, copyright infringement, trademark copyrights, online security policies, terms and conditions for products or services, and law enforcement support procedures. CenturyLink conforms to the Digital Millennium Copyright Act (DMCA) which provides notice and take-down processes for copyright owners that believe their intellectual property rights have been infringed upon. This Act allows copyright owner to notify any Online Service Provider (OSP) to remove or block access when any alleged infringement of material may resides on their OSP's system. CenturyLink values its website visitors and customer's security, there for the company wants to make visitors online experience a safe and enjoyable one. CenturyLink has taken immense precautions to monitor, prevent and identify any fraudulent behavior related to its website. "One form of online fraud is called "phishing" and this affects many companies across the globe. Phishing is a form of Internet fraud where an email or online site mimics as a legitimate organization to obtain an individual's confidential information" (CenturyLink, 2013).

Five Forces

Five Forces covers the following areas of CenturyLink’s business with the community and the market. The Five Forces analyzes whether the company is profitable in their business, whether their products’ are substitutable or not, and how much of a power does the customers have as well the suppliers and is it easily corruptible?

Supplier Power

The services CenturyLink provides is done through third parties, which can be detrimental to the company, since the third parties can hike the prices up without informing CenturyLink or without permission. CenturyLink is trying to get away from third parties contractors for their services other than phone and internet services by creating their own Prism TV for the customers and eventually their own cellular network. CenturyLink doesn’t have a strong supplier power for their services since they rely on multiple companies to provide the services.

Buyer Power

Customers at CenturyLink are treated with a personal touch from CenturyLink giving customer’s buyer powers. CenturyLink prides on keeping their customers satisfied. CenturyLink will do anything and beyond to keep their customers happy. Even when the company doing a merger with another company, in their mind the customer’s satisfaction comes first regardless what’s the merger is doing. If you’re thinking going to CenturyLink and take advantage of their promotions, most promotions have more than one year lock in price.

Degree of Rivalry

CenturyLink is facing their greatest challenge at the moment due to competitors encroaching on their playground. For example, Verizon is entering in certain areas where CenturyLink is only provider in the area is causing most customers to ditch their landlines and go wireless. That’s one of the CenturyLink’s problems with the competitors. Not only are they offering better services at a better price. They are also offering certain features that aren’t found with CenturyLink. Competitors are hurting CenturyLink’s profits due to their services they are providing that CenturyLink isn’t providing. However, CenturyLink isn’t letting the competitors get to them just yet. CenturyLink is focusing on providing other technologies and redoing their prices in hopes to keep their customers and bring in potential new customers.

Threats of New Entrants

Intense competition is one of the aspects of rivalry with other companies. The competition is from existing United States providers and more competitors are popping up from the urban markets. CenturyLink has rivalry from all directions in regards to the services they are providing to their customers. The rivalry can be from Comcast, AT&T, and Dish Network, Verizon, Sprint, and DIRECTV. CenturyLink may be the 3rd ranking in having the most access lines in the United States. CenturyLink is keeping their customers happy by having low costs on services and having more customer services offices located in their area. CenturyLink prides on giving the best services to their customers and they will continue practicing their ethics towards to the customers.

Threat of Substitutes

CenturyLink is currently offering different types of bundles that would make a potential consumer more interested in their company; however, competitors are following the same pattern by offering cheap bundles and different types of features that you can buy. For example, AT&T, Verizon, and Comcast offer a bundle which includes all three of their services for a low price. These promotional bundles have attracted many potential customers from CenturyLink to the competitors because of these nice cheap and economical bundles causing them to lose revenues.

Internal Analysis

Conclusion - Recommendation

CenturyLink is a good company to hang on to if you have their stock. With them advance into these other areas of technology. It has encouraged them to expand, and with them been the leader of fiber optic in the United States. It has given them a lot of support, and courage them to go further into commutation area. "With the company provides data, voice and managed services in local, national and select international markets through its high-quality advance fiber optic network and multiple data centers for customers."