In the new century, the old wired phone seems to have less relevance than ever. More than a third of U.S. homes now have only cellphones.
CenturyLink, Minnesota's largest telephone company, is acutely aware of this trend. In the third quarter of 2012 alone, CenturyLink's operating revenue dropped $25 million, mainly because of the continuing loss of individual telephone lines, the company said in government filings.
While declining revenue from traditional phone service has plagued CenturyLink and other traditional telephone companies for several years, CenturyLink's vulnerability increased when it acquired the Twin Cities' largest phone company, Denver-based Qwest Communications, nearly two years ago.
To combat the problem, CenturyLink has sought to bolster revenue through diversification into business services such as cloud computing. But so far that hasn't made up for all the revenue loss in its traditional phone business.
"CenturyLink is succeeding in slowing the decline in revenue, but they are losing some high-profit-margin business with the decline in home phone lines," said Donna Jaegers, an analyst with D.A. Davidson & Co. of Great Falls, Mont.
To keep customers, CenturyLink has offered discounted bundles of services that fetch lower profit margins, including video services that require CenturyLink to buy expensive programming content, Jaegers said.
To keep investors happy, CenturyLink offers a shareholders a fat dividend -- the most attractive feature of a stock whose price hasn't appreciated much in several years. The hefty annual dividend of $2.90 a share costs the company dearly; it soaked up 50 to 55 percent of CenturyLink's free cash flow in 2011 and 2012.
"If they cut the dividend, the stock price would go lower," said analyst Jaegers. "We rank CenturyLink stock neutral, because all you get is the dividend -- there is no capital appreciation."