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Optical/IP Networks

Lumen puts copper biz on the auction block...again

Lumen Technologies – formerly CenturyLink – said it's shopping its copper-based consumer Internet service provider business to prospective buyers.

"We are actively looking at selling non-core assets to unlock value in our business," CEO Jeff Storey said this week during the company's quarterly conference call with analysts, according to a Seeking Alpha transcript of the event. "If we find transactions that are positive to shareholders, we won't hesitate to move forward."

In response to questions, he clarified that Lumen is moving forward with its fiber-based network that is for sale to consumers and businesses, and would look to sell its copper-based network in locations outside of its main geographic focus areas.

"So what we will look at with respect to the consumer copper network, that type of thing, would be looking at markets that we don't think are necessarily core to our platform in fiber strategy," Storey explained. "I don't want to be very specific about what those could be or might be. But I do want to emphasize that we're open to looking at divestitures, and we actively pursue them."

The company conducted a similar effort in 2019 that did not result in any deals.

However, this time might be different, according to some financial analysts.

"We're seeing a renaissance of residential telco assets in play, once 'left for dead,' as the residential space is now awash with capital driven by the telcos themselves ... and interest from private equity/infrastructure funds looking for their own platforms," wrote the financial analysts at Cowen in a note to investors. "This renaissance is driven by low interest rates, the pandemic lockdown 'criticality of broadband' narrative, and subsequent permanency of at-home trends."

However, most financial analysts aren't so sure that Lumen will be able to find success in 2021 where it failed in 2019.

"A sale would be complicated by several factors," argued the financial analysts at MoffettNathanson. They said Lumen is likely looking to sell areas that don't generate much revenues, and that might not be attractive from a tax standpoint.

Interestingly, the Cowen analysts speculated the sale could cover millions of potential customers. They noted that Lumen covers around 2.5 million locations with fiber but fully 18.5 million locations with copper, and the company likely would consider selling a large portion of those copper-based locations. However, they calculated that it's unclear whether any buyers would be willing to fork out the kinds of cash that would make it economically worthwhile for Lumen to sell its copper business.

"Paying up meaningfully for copper, enough to make it notably value accretive to Lumen, remains TBD," they concluded.

Overall, Lumen posted first quarter financial results mostly in-line with analyst expectations. The company also reiterated its financial guidance for the remainder of the year.

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

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