Lumen Technologies had hoped to build fiber connections to 1 million locations by the end of this year. But many analysts don't think that's going to happen.

"Lumen is deploying significant capital toward its FTTH [fiber-to-the-home] upgrade program but is having challenges ramping the deployment at the pace it expected. Supply chain, labor, and permitting hurdles have all weighed on enablements," the financial analysts at MoffettNathanson, a division of SVB Securities, wrote in a note to investors following the release of Lumen's third quarter results this week. The analysts noted that Lumen lit up 210,000 locations with fiber in its third quarter, just up from the 205,000 it notched during its second quarter.

However, "the company seems likely to miss its full-year enablement target of 1 million ... and its goal of exiting the year at a 1.5-2 million run-rate appears out of reach," the analysts noted.

Figure 1: (Source: Pixabay)

That's noteworthy considering other big fiber operators like AT&T and Frontier Communications have reported that they remain on track for their own fiber buildout goals.

The financial analysts at Cowen offered some reasons for Lumen's apparent sluggishness. "Lumen is the only large carrier this earnings season to see such a significantly muted build pace, we believe due to the late start vs. other carriers as Lumen is ramping its build engine amidst labor and supply shortages (as other carriers had the first-mover advantage locking in place labor and supply runways and warehousing equipment)," they wrote in a note to investors.

Lumen officials said the company is moving as fast as it can.

"There is some near term headwinds. But at this point, I don't think that changes our goal in terms of where we want to go or what we think we can do," CFO Chris Stansbury said during the company's recent quarterly conference call, according to a Seeking Alpha transcript, in response to a question on the topic. "It's really about all hands on deck right now to see what we can do given permitting and labor issues to get as many enablement's in the ground as we can, as fast as we can."

Goodbye, dividend

Lumen's fiber buildout is important because it's one key element of the company's long-term financial strategy. Like a number of other US telecom network operators, Lumen is hoping that an extensive network upgrade to faster fiber services will help it both retain existing customers and add new ones as Internet surfers increasingly look for speedier and more reliable connections.

But Lumen's fiber buildout isn't the only part of its overall corporate strategy. The company also announced it will sell its Europe, Middle East and Africa (EMEA) business to Colt for $1.8 billion. That sale builds on top of Lumen's previously announced $2.7 billion sale of its Latin America business and the $7.5 billion sale of its ILEC assets in 20 states.

Even with those big transactions, Lumen is still struggling financially. The company announced this week it is scrapping its dividend and will instead embark on a $1.5 billion share buyback program.

Analysts generally cheered the move, arguing it will provide Lumen with additional financial flexibility. But investors still seem unconvinced that Lumen – complete with a new CEO – is on the right trajectory, given the slide in the company's share price following the release of its quarterly earnings.

"While the announcements allow for a cleaner story and major overhang removal, the revenue inflection may not change much (late 2024/2025) as underlying fundamentals still remain challenged as we wait for more clarity on inflection visibility before getting more constructive," wrote the financial analysts at Cowen on Lumen's overall situation.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano