Lumen to cut 4% of employees, dial back fiber buildout pace

Lumen Technologies' third quarter call left much to unpack as the company announced it was laying off 4% of employees, expected to match – rather than beat – this year's fiber network buildout in 2024, and struck a new deal with creditors that will help fund its ongoing turnaround initiative.

Lumen is pushing ahead with a reorg that will result in a layoff of about 4% of employees, CEO Kate Johnson announced on Tuesday's call. She didn't detail which areas of Lumen would be most deeply affected, but the layoff is expected to impact about 1,200 employees, based on the 30,000 employees Lumen had as of September, 30, 2023, according to a 10-Q filing.

Johnson said the reorg, plus other "optimization initiatives," will save Lumen about $300 million per year.

Lumen expects to have its reorg "substantially completed" by the fourth quarter of 2023 and incur severance and related costs in the range of $55 million to $65 million, according to a 10-Q filing.

"This is a difficult, but necessary decision given the revenue pressure we felt from the noise in the market regarding our creditor discussions, as well as global macroeconomic pressures," she said.

New financing to fund turnaround plan

Lumen also struck a deal with a group of creditors holding more than $7 billion of company debt that will extend debt securities and commit $1.2 billion of financing through new long term debt.

Related:Lumen shows fiber progress, asks for patience

"Depending on participation rates, it really does clear a path largely to 2029, which gives us more than ample time to execute the turnaround," Lumen EVP and CFO Chris Stansbury said of the agreement.

He didn't elaborate much about how Lumen expects to use the proceeds  "We'll use the funds. It's all really part of restructuring the debt. It's not about using it to necessarily fund a specific piece of capex," he said.

Flattening fiber buildout pace

Given the company's tighter resources, Lumen also dialed back the pace of the ongoing fiber buildout at its Mass Markets unit.

The new plan is to build fiber to another 500,000 locations in 2024, matching what it expects to complete this year. That's down from an earlier plan to bump the buildout pace to 800,000 locations annually. That whole project ties into an original plan to build fiber to an additional 5 million to 7 million locations in the coming years and expand Lumen's overall fiber footprint to 8 million to 10 million.

"I want to be really clear on this, we're not walking away from the consumer build," Stansbury said later when asked if the company was concerned that the slower build pace would further expose Lumen to fiber overbuilders. "We're saying that we're going to stay relatively flat to where we are this year. That is still a substantial investment in consumer. And I think if you look across the space with rising cost of capital, all of our competition has pulled back. So, this move is actually not out of step with what's going on in the broader marketplace."

Related:Lumen launches network as a service

Lumen's revised fiber buildout pace is "quite robust to what we're seeing on a competitive front," he added.

Lumen added 141,000 fiber "enablements" in Q3 2023, extending its total to 3.5 million locations. The company added 19,000 fiber subs in Q3, below the +27,000 expected by MoffettNathanson. Paired with a loss of -92,000 non-fiber subs, Lumen shed 73,000 broadband customers in the quarter.

Amid those results and the decision to pare down the pace of Lumen's fiber buildout, Stansbury pointed out that the company continues to believe that its best use of incremental investment is for a business services segment that tends to see "faster and better returns."

Future of Lumen's consumer biz questioned

On Tuesday's call, an analyst asked if it made sense for Lumen to sell the Mass Markets unit to another company with the resources to invest more aggressively in fiber upgrades and to pursue opportunities coming by way of the $42.45 billion Broadband Equity Access and Deployment (BEAD) program.

Related:Lumen's 'Quantum Fiber' push fits into grander growth plan

"I would say that that's a consideration that we look at regularly," Stansbury responded, reiterating that Lumen is not stopping its investment in the consumer part of its business. But he did acknowledge that Lumen has been "very public in saying that the consumer space is one that is ripe at some point in time for consolidation. When that happen, we don't know … If and when the right time comes, then we'll consider those options."

Meanwhile, Lumen has been selling off other pieces of the company. In addition to the recent sale of the majority of its content delivery network (CDN) contracts to Akamai, Lumen expects to close the proposed sale of its EMEA (Europe, Middle East and Africa) business to Colt Technology Services today (November 1). Lumen will use the $1.5 billion in proceeds from the Colt deal to reduce debt.

Among the wave of news Tuesday, Lumen also announced it has integrated its recently launched network-as-a-service (NaaS) platform with Equinix Fabric. Lumen said the deal enables Equinix's roughly 10,000 customers to "instantly buy, use and manage" Lumen's Internet-on-demand service and future NaaS services.