Century Telephone Enterprises, Inc. Business Information, Profile, and History

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History of Century Telephone Enterprises, Inc.

Century Telephone Enterprises, Inc. (CenturyTel) is one of the few remaining large independent telephone companies in the United States, providing local exchange telephone service to 2.5 million customers in 22 states. CenturyTel has maintained a consistent strategy of pursuing rural and small-city markets with fast-growing populations outside major metropolitan areas. In 2002, the company divested its wireless business so that it could focus exclusively on broadening its geographic base for telephone service.

The Early Days: 1930-46

The history of Century is rooted in the family of William Clarke Williams, a former manager of the Ozona Telephone Company in west Texas. In 1921, shortly after accepting a job in the payroll department of Southern Bell in Monroe, Louisiana, Williams married Marie Hill, a former teacher and operator for the Mertzon Telephone Company in Mertzon, Texas.

In 1930, Williams purchased the Oak Ridge Telephone Company near Monroe from F.E. Hogan, Sr. The Williamses moved the company's switchboard into their home, where Marie Williams worked as an operator. Assisted by two young girls, Mrs. Williams switched calls around the clock, except for a five-hour break on Sundays for church. The family also maintained two phone booths in their front parlor for people who did not have a telephone. Each month, Mrs. Williams would manually write the bills for each of the company's 75 customers and send her son Clarke on his bicycle to collect on them.

As these were the early days of telephony, as many as ten customers commonly shared a single line. Parties were distinguished only by a unique ringing pattern, but anyone was free to pick up on someone else's line and listen in. Each line consisted of a single wire that ran from the switchboard, to several phone sets. A second wire connected the telephone to the ground. To improve transmission during dry weather, subscribers frequently had to pour water on the ground line.

The Oak Ridge Telephone Co. was leased to a relative and William and Marie Williams moved to nearby Oak Grove, where Marie became chief operator of the telephone company and William become district manager of a rural electric power co-op district. In 1946 William and Marie transferred the Oak Ridge Telephone Company to their son, Clarke.

The Road to Incorporation: 1946-71

At this time, the Bell companies had begun to introduce dial systems, which enabled callers to reach a party without the intervention of an operator. Enthused at the prospect of automating the small system, Clarke Williams secured an agreement for the $3,500 that it would cost. Eight months later, when the Kellogg device arrived by train, Williams returned to the bank only to learn that the elderly loan officer who had promised him the loan had died. The bank's officers refused to honor the dead banker's promise.

A family acquaintance and former banker named Joe Sydney Carter intervened with a personal loan to Williams, enabling him to haul the switch home and begin installation. The dial system proved so reliable for Williams that he decided to buy and upgrade a second telephone company, located in Marion, Louisiana. Upon purchase of the Marion Telephone Company, Clarke and Marie moved to Marion to begin operating the Oak Ridge and Choudrant systems as well as the Marion telephone system.

In 1948 Clarke Williams and his father-in-law, George Lee, went to negotiate the purchase of another company in Plain Dealing, Louisiana, for Lee. When they arrived, however, they learned that its proprietor had just died. Rather than turn around, the two managed to contact the owner's son and later emerged with an agreement to buy the Plain Dealing Telephone Company on credit.

In Plain Dealing, the previous owner did not want to build lines outside the city limits. The rural customers built the lines from the city limits to their homes. When the customers did not keep the lines in working condition, he simply cut the wires at the city limits. When a state commissioner came to demand that Williams and Lee observe their obligation to universal service outside the city limits, Lee countered that they could only afford it if they could tear out the private lines. The commissioner agreed, and service outside the city was restored.

According to a company publication entitled Centuryan, Clarke Williams's father had earlier suffered a severe stroke that left him unable to speak. Shortly before he died in 1957, the elder Williams advised his son to spend all the life insurance proceeds on new telephone businesses. Williams and Lee began searching for new telephone companies located contiguously to companies they already owned. This would enable them to handle toll calls between more locations and economize on maintenance.

The first company they investigated buying was in Junction City in southern Arkansas. Though located in another state, the franchise served an area adjacent to one of Williams's companies. A few weeks later they found a second, considerably larger company in northern Arkansas. By 1962 they had acquired both companies, and a third contiguous property.

George Lee died in 1965. The loss of an effective and trusted manager led Williams to consider new forms of organizing his growing company. In 1968, with 15 telephone companies in the enterprise, he decided to form a holding company and take it public. The new company, called Central Telephone and Electronics, and headquartered in Monroe, Louisiana, was formed on April 30, 1968. It was renamed Century Telephone Enterprises, Inc., in 1971.

Williams brought in two new managers: Marvin Hill, a former engineer with Stromberg-Carlson, and Ken Conrad, whose Breaux Bridge Telephone Company had earlier been acquired by Century.

Growth Through Acquisitions: 1971-84

Small telephone companies throughout the United States went up for sale during the 1970s, largely because descendants of the families that operated them held no interest in the tiny operations. A moratorium on acquisitions by Bell companies meant that many were eventually taken over by larger independent companies such as General Telephone and Consolidated Telephone. Several other smaller independents were involved in the consolidation of the industry at this time. Rochester Telephone, TDS, and particularly Century were among those that grew very quickly from these seemingly insignificant acquisitions.

During the 1970s, Century expanded into neighboring Arkansas and acquired telephone properties in Wisconsin and Michigan. The company's most significant acquisition during this period came in 1972, when it took over the La Crosse Telephone Corporation of La Crosse, Wisconsin. La Crosse Telephone was larger than any of the company's other properties and instantly established Century as a major independent telephone company.

On October 24, 1978, Century Telephone Enterprises, Inc., gained a listing on the New York Stock Exchange. This afforded the company the recognition and access to funding it needed to continue growing. Century had a well-established reputation among independent companies. While other buyers were known for instant layoffs and other severe tactics, Century was respected for its dedication to existing management and employees. This reputation served Century well, as many small companies chose to deal only with Clarke Williams. By the 1980s the number of independent telephone companies in the United States had declined from 7,500 to about 1,500. Century emerged as one of the largest independent telephone companies in the nation.

Just as Century was one of the first small companies to introduce dial service, it also became one of the first to implement digital switching. These switches, more closely related to computers, replaced older electromechanical devices that were prone to break down. The introduction of digital switching also brought Century customers a variety of new network capabilities, such as call forwarding, call waiting, and three-way calling.

In 1984 the Justice Department finally won its 70-year antitrust battle with AT&T. One of the areas that opened up for competition was the cellular telephone business, which was still in its infancy at that time. Century bid for licenses to operate cellular systems in numerous areas. In those especially important areas where the company's bids had been unsuccessful, Century offered to purchase the licenses from the winning bidders.

Pioneering Wireless Services: 1984-90

As in the wire-line past of the business, Century understood that contiguous properties could provide numerous operating economies and more efficient concentration of resources. Cellular licenses for vast rural expanses, when grouped together, held as much potential as the more hotly contested urban licenses. This was particularly true of rural areas with busy interstate highways.

Century was one of the first companies to develop cellular operations. As a result, when other companies began to show interest in the market, prices for licenses were bid up to astronomical levels. Not only did Century's cellular operations grow into extremely valuable assets, they were also profitable.

The company also started a paging service as part of its Century Cellunet cellular communications group. The rapid growth of Century's cellular operations, particularly between 1985 and 1987, raised concerns that the company could easily be targeted for a hostile takeover. Rather than loading the company with debt, a common but dangerous defense strategy, Century took the unusual action of granting four votes to each shareholder who owned the company's stock for more than four years. The strategy was later augmented to ten votes for each shareholder of record prior to May 1987.

The action brought a lawsuit from Mario Gabelli, a financier who owned 14 percent of Century's shares, almost all of which had been purchased after 1987. The suit was dismissed, and Century succeeded in concentrating voting power through the company's employee stock ownership plan. The result was employee control of 40 percent of Century's voting rights.

Williams's only son, Clarke, Jr., was slated to follow his father and grandfather as head of Century. However, the younger Williams was afflicted with Hodgkin's Disease. In 1989, after serving as Century's president for six years, Clarke, Jr., suffered a cerebral hemorrhage. He returned to work briefly, but later took disability retirement.

That same year Century took over the operations of Universal Telephone, a company with 48,000 access lines in five states and licenses to operate cellular systems in 19 markets. The $90 million acquisition was Century's largest to date. In 1992 Century acquired the Ohio operations of Centel Corporation, a company serving 64,000 lines, mostly in the growing suburban Cleveland area. The $135 million deal significantly boosted Century's position in the industry and increased its total access lines by 20 percent, to more than 425,000.

Century subsequently added several more smaller companies, building upon the company's contiguous property "clustering" strategy. These clusters comprised important rural areas which, unlike the saturated urban areas controlled by the Bell companies, had much higher potential for growth.

Its strongest growth in the early 1990s was in Michigan, where it controlled cellular licenses for almost the entire state. Its second largest concentration of cellular properties was in northern Louisiana and southern Arkansas, including Texarkana, Shreveport, and Monroe. Century also owned cellular interests in a huge area covering southeastern Colorado, western New Mexico, and northern Arizona. In the years since the divestiture of AT&T, telephone stocks were one of the highest growth sectors in American industry, and Century led the pack.

Safely insulated from the prospect of a hostile takeover in the early 1990s, Century appeared well-positioned to concentrate its energies on the development of its service areas and strategic acquisitions of other promising ones.

Building the Customer Base in the 1990s

Through the 1990s, Century continued the rapid expansion of its customer base through a series of acquisitions aimed at gaining market share in fast-growing rural populations. In 1993, Century gained approximately 28,000 cellular customers in Mississippi and Texas through the acquisition of Celutel Inc. at a rough cost of $105 million. Following the acquisition, Celutel was renamed Century Cellunet. In 1995, Century made a $20 million investment in GO Communications Corp. By purchasing a minority equity interest in GO, Century gained a low-risk opportunity to penetrate several significant U.S. markets.

Century also continued its efforts to keep operating and marketing costs low by clustering, or bundling, numerous different services in the same geographic areas, thereby achieving economies of scale for those regions. To this end, Century made its largest acquisition to date in 1997, when it purchased Pacific Telecom, Inc., a Portland, Oregon-based company, for $2.2 billion in cash and assumed debt. With the acquisition, Century doubled its phone lines to 1.2 million, becoming the 12th largest local phone company and 10th largest cellular phone operator in the United States.

With exponential growth in the markets for cellular phones, home Internet access, and related services, the telecommunications industry was booming in the late 1990s. In 1998, amid ever intensifying competition, Century doubled its revenues and its stock value. Earnings for the year totaled $194 million. The company's strategy of building its customer base outside major metropolitan hubs was certainly paying off, as rural population growth in Arizona, Colorado, Idaho, Montana, New Mexico, Oregon, and Washington--all states where Century operated--had grown more than 10 percent from 1990 to 1997.

In 1998, with diverse operations in 21 states, the company launched a national rebranding strategy to unify its various business divisions and its corporate image under a single name. Whereas the company had previously marketed its services under the names Century Telephone, Century Long Distance, PTI Communications, and Century Cellunet, all services would now be offered under the name CenturyTel.

In 1999, with its new brand identity firmly established, CenturyTel continued its seemingly relentless pursuit of acquisitions, taking over GTE's local-exchange telephone services in Arkansas. At a purchase price of $843.3 million, CenturyTel added 230,500 access lines to its operations, which were projected to bring in $165.3 million in annual revenue. Also in 1999, CenturyTel spent $365 million to acquire 126,400 access lines in Wisconsin from GTE. In 2000, on the international front, CenturyTel made a $22.9 million investment in DishnetDSL, a Madras firm with the license to provide Internet service in India.

The most significant acquisition in CenturyTel's history came in October 2001, when the company acquired 675,000 access lines in Missouri and Alabama, regions experiencing 19 percent population growth, from Verizon, Inc. The deal, worth $2.16 billion, increased CenturyTel's overall line ownership by 37 percent. At the same time, facing increased competition and the new presence of national providers in the wireless market, CenturyTel began to consider divesting its wireless assets. Though revenues from the wireless business remained strong for CenturyTel, the Verizon acquisitions had significantly tipped the balance of its business toward regular telephone assets, and CenturyTel soon concluded that the latter would offer better opportunity for low-risk, long-term growth.

Renewed Focus on Telephone Markets: 2002

Having rejected a hostile takeover bid from rival telephone giant Alltel Corporation in August 2001, CenturyTel then agreed in March 2002 to sell its entire cellular business to Alltel for $1.65 billion. With the successful divestiture of its wireless assets, CenturyTel was well positioned to pursue more focused strategic growth in new telephone markets. CenturyTel remained committed to developing its business in fast-growing rural and small-city markets, a strategy that had served the company well in the past and would likely continue to do so.

Principal Subsidiaries: Century Cellunet; Century Business Communications, Inc.; Century Telecommunications, Inc.; Century Service Group, Inc.; Century Supply Group, Inc.; Interactive Communications, Inc.

Principal Competitors: ALLTEL Corporation; BellSouth Corporation; SBC Communications Inc.

Chronology

• Key Dates:
• 1930: William Clarke and Marie Williams purchase the Oak Ridge Telephone Company in Oak Ridge, Louisiana.
• 1946: Clarke McRae Williams, son of the founders, assumes leadership of the company.
• 1968: Century Telephone and Electronics is incorporated.
• 1971: The company is renamed Century Telephone Enterprises, Inc.
• 1978: Century makes its initial public offering on the New York Stock Exchange.
• 1997: Century makes its largest acquisition with the purchase of Pacific Telecom, Inc. (PTI).
• 1998: The company launches a broad rebranding effort, hereafter doing business under one name, CenturyTel.
• 2002: CenturyTel sells its wireless business to Alltel for $1.65 billion.