Telecom's next big G is bankrupG

For a while, 5G, 6G and 10G were all the rage in the US telecom industry. But now it seems like the next big "G" in telecom will involve bankruptcy (bankrupG?).

Casa Systems said on Wednesday it would sell off its cable business and a sizable chunk of its mobile/wireless business under a court-supervised Chapter 11 process.

The day before, Airspan said it filed a Chapter 11 bankruptcy plan that most of its creditors, including Fortress Investment Group, supported. Airspan said the move would give it up to $95 million in new equity financing.

They're not alone. Cyxtera Technologies – which provides data center colocation and other digital infrastructure services – filed for Chapter 11 bankruptcy protection in June 2023. It ended up selling its assets to Brookfield Infrastructure Partners in November 2023.

Also last year, telecom construction company QualTek Services filed Chapter 11 in May, and data center provider Internap Holding did the same in April. Fixed wireless Internet provider Starry Group emerged from bankruptcy in August.

Other companies look like they're on the brink. CommScope, Lumen Technologies and Dish Network are facing extremely difficult financial situations and may pursue some kind of restructuring – including bankruptcy – as a result, according to ratings company Debtwire. And Ligado Networks recently warned the US Court of Federal Claims that it's on "the brink of bankruptcy." To be fair though, that's a familiar place for Ligado.

The great telecom slowdown

None of this really comes as a surprise. Although each company in the telecom industry is facing its own unique set of circumstances, broadly the sector is suffering through a prolonged spending drought. US vendors began warning toward the end of 2022 that network operators had mostly halted spending on their networks.

The trend isn't restricted to the US.

"Preliminary findings show that worldwide telecom capex [capital expenses], the sum of wireless and wireline/other telecom carrier investments, declined for the full year 2023 in nominal USD [US dollar] terms, recording the first contraction since 2017," wrote research firm Dell'Oro Group in a recent release.

Based on commentary from the likes of Calix, Corning, Cisco and others, the spending freeze appears to have continued into 2024. The apparent end of the US government's Affordable Connectivity Program (ACP) subsidy program probably won't help.

In response, big vendors are shedding thousands of jobs. In just the past few weeks Cisco confirmed it will cut around 5% of its workforce, or around 4,000 positions. And Ericsson said it would reduce headcount in Sweden by 1,200 roles, just months after cutting 9,000 jobs.

But for smaller vendors, the situation appears far more extreme.

"We cannot rule out the risk of bankruptcy, but we believe the fundamentals have nearly bottomed and that the company can avert default," Raymond James analyst Simon Leopold wrote of vendor CommScope at the end of last year. "We consider CommScope a good company, yet it faces challenges."

Waiting for the sun

Nevertheless, some bellwethers in the space continue to predict an upswing, just any day now.

"We anticipate optical communications sales will spring back because we believe and our carrier customers have confirmed that they purchased excess inventory during the pandemic and that they've been utilizing this inventory to continue deploying their networks," Corning CEO Wendell Weeks said in January. Corning manufactures much of the core physical cabling used in US fiber networks.

"We believe these carriers will soon deplete their inventory and execute on the increased broadband deployment plans they've communicated to us over the last several months," Weeks said. "As a result, we expect them to return to their normal purchasing patterns to service their deployments."

Others agree.

"The companies in our space believe telecom demand is at the bottom, and expect to begin to see normalization by late calendar year 2024," wrote the financial analysts at Rosenblatt Securities in a note to investors this week, citing meetings with executives from Viavi and other companies. Viavi sells network-testing equipment, which is often purchased prior to network-upgrade efforts.

Dumpster diving

The increasingly dire situation in the telecom market has given a jolt to the companies that play within the confines of corporate distress and bankruptcy. For example, Lumine Group reported recently that its operating income reached $144.7 million during 2023, up 115% from the previous year. Lumine "acquires, strengthens and grows vertical market software businesses in the communications and media industry," according to its website.

Lumine has been busy. During 2023 it acquired telecom messaging company Openwave, network inventory management company RazorFlow, telecom deployment company SpatialNetworX, programmatic ad company WideOrbit, and NetNumbers' Titan.ium business, which focuses on signaling, routing and subscriber data management. 

And in just the first few months of 2024, Lumine has so far purchased Nokia's device and service management platform business, Synchronoss Technologies' messaging and network logistics businesses and, this week, Casa Systems' 5G mobile core and RAN assets.

That means Lumine is now in charge of handling Verizon's private wireless core networking business, based on Verizon's 2022 agreement with Casa for core networking services.

Lumine's purchase of Casa's 5G mobile core and RAN assets is particularly noteworthy, given that Verizon officials continue to tout private wireless networking as one of a handful of major opportunities for the network operator.

"We used to do one or two deals a month. Now, we are doing significantly more deals a month, some high-profile deals in that space. So there's continued growth in the [private] wireless space," said Sowmyanarayan Sampath, EVP and CEO for Verizon Consumer Group, at a recent investor event, according to Seeking Alpha.

No wonder Lumine's 2023 report starts with a full-screen message: "The future is bright."