ye, Bye Qwest and Hello Cloud!

The merger between CenturyLink and Qwest officially closed today, creating the nation’s third-largest phone company in a world where being a phone company means less and less. To honor the occasion, CenturyLink (we lose the Qwest name) offered to have Christopher Ancell, president of business markets, talk with me about what the future holds in his division, which includes corporate telecommunications customers and those buying data center services. The two big themes are that bandwidth demand is continuing to grow and that the new scale gained through this acquisition might help CenturyLink make some cloud-related deals.

In the last year, Qwest had tiptoed into the on-demand services market by providing application recovery and interactive voice recognition on demand, but it wasn’t as large a player as Verizon with its Compute-as-a-Service products. And in January, Verizon said it would purchase Terremark, a provider of private clouds and data centers in a deal valued at $1.4 billion, saying cloud services were a big growth area for the company. Ancell agrees, although when I asked about the likelihood of a CenturyLink acquisition in this space, he replied, “Glen [Post] is an acquirer and has been the CEO for 19 years and has a track record of acquiring companies, and I would expect that to continue.”

Ancell says the merger gives CenturyLink scale and larger free cash flow, which could boost its deal-making capabilities. The company is trying to figure out what customers want from Infrastructure-as-a-Service providers and what they want as software. Qwest had 17 data centers that it brings to CenturyLink, which as of the end of 2010, reported $172.94 million in cash and $2 billion in operating free cash flow. It does have more than $7 billion in debt, however, and none of that includes Qwest’s contribution.

Aside from a possible rush to the cloud, CenturyLink closes this deal with 190,000 miles of fiber, after adding 75,000 miles of Qwest local fiber and 30,000 miles of Qwest backbone fiber. As it seeks to serve businesses and data centers, the biggest constant is bandwidth demand continuing to grow. Ancell echoed what I had heard recently about larger corporations wanting to upgrade to 100 Gigabit access from 10 Gigabit pipes — completely skipping over the 40 Gigabit access. He cautioned that not everyone was skipping 40 Gigabit access, but that the awesome demand for video and other applications was causing companies to look hard at their upgrades. With 40 percent of network traffic being video, the demand is continuing to rise, he said. “People just need more and more bandwidth at rates that almost have us saying, ‘What is going on?’”Ancell said.