Lumen Technologies expects to build fiber to an additional 500,000 locations in 2024, matching its pace for 2023. However, some industry watchers believe Lumen could open itself up to fiber overbuilders if it can't accelerate its pace.

During Q4 2023, Lumen deployed fiber to another 126,000 new locations, down from 141,000 in the prior period, but ahead of the 113,000 that analysts were expecting. Lumen ended the period with 3.7 million fiber-to-the-premises (FTTP) locations.

Lumen added 20,000 new fiber customers in the period, just a smidge off expected adds of 21,000. Lumen ended 2024 with 916,000 fiber subs and penetration of about 25%.

Lumen could see improved results based on recent fiber sales trends.

"While we weren't happy with our net adds performance in 2023 all up, our sales and marketing engine is now gaining momentum as we close the year strongly with record-high December sales, and we continue to see this pace hold through January [2024]," Lumen President and CEO Kate Johnson said on the company's recent earnings call.

Though revenues at Lumen's Mass Markets unit declined 8.3% year-over-year, fiber broadband revenues rose 11.5%. Fiber average revenue per user (ARPU) reached $61, up 1.2% year-over-year and flat versus the prior quarter.

Can Lumen pick up the pace?

But the pace of Lumen's buildout concerns some analysts.

"Our gripe is that they claim an 8-10MM location target for fiber deployment, with a starting point of 3.7MM, and they are only marching towards that target at a pace of ~500k per year.  It will take a decade to get there at this pace.  In the meantime, they are being targeted by overbuilders," New Street Research analyst Jonathan Chaplin explained in a research note. "If Lumen doesn't build those locations, other overbuilders will build them."

But Chaplin acknowledged that Lumen's pace is dictated by "capital constraints." He is also pushing the idea that Lumen's Mass Markets unit would be more valuable in the hands of another company that can deploy fiber more rapidly.

He views one of the three national wireless carriers – AT&T, Verizon and T-Mobile – as potential candidates, but "they may not be ready for a deal of this size until 2026," Chaplin added. "There may be an intermediate consolidation step through, or a sale to private equity."

Chaplin estimates that Lumen has a Broadband Equity Access and Deployment (BEAD) opportunity of about 1 million locations inside its footprint, and perhaps double that when adjacent markets justified by BEAD subsidies are included.

"To fully capture the opportunity in the ILEC, a buyer should move briskly," he added.

Agreements 'clear the path for our turnaround'

Meanwhile, Lumen has secured some additional runway to execute on its turnaround.

Last month, the company struck an agreement with several creditors that extends its debt maturities to 2029 and beyond, and adds $1.32 billion of net new financing and roughly $1 billion of revolving credit.

That modified transaction support agreement (TSA) with a broad group of creditors, Johnson said, "clears the path for our turnaround."

"In short, our capital structure is no longer a limiting factor in our transformation," added Lumen EVP and CFO Chris Stansbury. He said Lumen expects to close the proposed agreements in the first quarter of 2024.

The agreement "gives the company more time to execute on its transformation plans before having to refinance its significant debt stack," MoffettNathanson analyst Nick Del Deo explained in a research note.