Lumen Technologies reported that it has so far inked more than $8 billion in private custom fiber (PCF) agreements with the likes of Microsoft, Amazon, Google and Meta. And company officials suggested there are more on the way.
"Big Tech is choosing Lumen because our geographically diverse, conduit-based intra and intercity fiber network was built for this moment," said Lumen CEO Kate Johnson on the company's earnings conference call. "No other telco that owns a fiber network is doing this. And we see it as a material differentiator and revenue generation opportunity for Lumen in the future."
Johnson said Lumen has established a dedicated operations team to build such networks for AI services. And she said that, as the use of AI spreads among big enterprises, Lumen may see additional demand for its PCF offerings.
"These enterprises are calling Lumen because they know we connect all three public clouds, and they also see that we are investing in the future networking needs, unlike any other company in the networking marketplace," she said.
Johnson added that Lumen is "building the backbone for the AI economy."
Some analysts acknowledged that Lumen – with a fiber network connecting many of the major cities in the US – is uniquely positioned to transport AI traffic across the country.
"Lumen clearly has a competitive advantage for these sorts of deals on existing long-haul routes, given the spare conduits it has from the Level 3 buildout a quarter century ago. Competitors (and customers) can't match it from a cost and time to market perspective," wrote the financial analysts at MoffettNathanson in a note to investors following the release of Lumen's quarterly earnings.
The results, and a possible sale
Still, Lumen continues to report troubled financials. The company's adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) reached $899 million in the third quarter of 2024, down from $1.049 billion in the same period a year ago.
"Our financial performance still reflects the secular headwinds on our legacy revenues," Johnson, the company's CEO, explained. "But our team sees a clear path to turn this company around. ... All of this will take time to execute, and it will take time to show up in our financials. But the path is real."
One of Lumen's opportunities lies in its efforts to sell its "mass markets" business. Lumen officials for months have been discussing the possibility of offloading the company's "mass markets" division, either through a sale, joint venture or other transaction.
Lumen's mass markets business contained a total of 2.6 million residential and small business customers at the end of the third quarter of 2024. Around 1 million of those customers were on fiber connections; the rest were on the operator's copper network. Lumen has been expanding the reach of its fiber network by roughly 500,000 locations per year.
But how much is Lumen's mass markets business worth? Recent proposed fiber transactions – BCE's purchase of Ziply and Verizon's play for Frontier Communications – have helped analysts price Lumen's business.
According to the financial analysts at New Street Research, the value of Lumen's mass markets business could lie between $14 billion and $20 billion.
But a sale of Lumen's mass markets business is complicated, according to the MoffettNathanson analysts. "A transaction could simplify the business, reduce FTTH-related capex, and aid the balance sheet," they wrote. "But the valuation of a legacy business with modest fiber coverage, a serious overbuilder issue, and presumably less favorable bidding dynamics than Frontier had, is a question mark."