Lumen Technologies has begun the process of selling its consumer fiber business, signaling a shift in its operational focus while addressing its substantial debt, sources familiar with the matter disclosed. The potential transaction, valued between $6 billion and $9 billion depending on its structure, underscores the Monroe, Louisiana-based company’s intent to move away from legacy markets and align itself with burgeoning opportunities in artificial intelligence (AI).
The consumer fiber unit, which provides high-speed internet services to residential customers, has been a critical part of Lumen’s mass markets business. However, the company has engaged Goldman Sachs to explore sale options, including potential partnerships or joint ventures, with industry rivals and other stakeholders reportedly showing interest. Despite early-stage discussions and no guaranteed outcome, Lumen’s shares climbed nearly 5% following the news.
Focus on Growth and Debt Reduction
Lumen’s strategic pivot centers on leveraging AI-driven growth while addressing a decline in revenue and profits from its older business lines. Chief Financial Officer Chris Stansbury remarked at a recent conference that the fiber unit could thrive better in the hands of a company with a wireless portfolio. The shift may involve separating the consumer and enterprise segments of the fiber business, with the latter, serving large-scale enterprises, not being part of the sale.
This isn’t Lumen’s first major restructuring. Known as CenturyLink until its 2020 rebranding, the company sold local exchange carrier assets in 20 states for $7.5 billion in 2021. As of September, Lumen reported operating 4.1 million fiber-enabled locations and emphasized its commitment to enterprise fiber operations.
Challenges and Opportunities
Lumen has faced persistent challenges with its legacy business, which encompasses broadband and voice services grown through acquisitions like the $25 billion merger with Level 3 Communications in 2017. As technology in these areas has become outdated, Lumen has turned its focus to more future-proof solutions.
Recent contract wins highlight Lumen’s repositioning efforts. In August, the company secured $5 billion in deals, including AI connectivity contracts with Microsoft. Its third-quarter performance saw $3 billion in new contracts from prominent partners like Meta, Alphabet, and Amazon. These achievements have significantly boosted Lumen’s market value, which now stands at approximately $6.2 billion.
Despite these successes, financial hurdles remain. Lumen’s revenue for the third quarter fell by 11.5% year-over-year to $3.2 billion, while net losses widened to $148 million. Its fiber broadband division, however, showed resilience, growing 16.6% compared to the previous year.
Financial Maneuvers and Future Prospects
To manage its debt, which stood at $18.1 billion as of September, Lumen launched a debt swap to extend maturities, albeit at the cost of a credit rating downgrade from S&P Global Ratings. Yet, recent AI contract wins have led S&P to place Lumen on CreditWatch Positive, hinting at a possible credit rating upgrade depending on fourth-quarter outcomes.
As Lumen navigates these transitions, its consumer fiber sale could mark another step in realigning its business for long-term stability and growth.
Author’s Opinion.
Lumen’s decision to explore selling its consumer fiber business reflects the broader challenges faced by legacy telecom companies in adapting to rapidly changing market demands. While the focus on AI and enterprise connectivity positions Lumen for potential growth, offloading a profitable and growing segment like consumer fiber could be a double-edged sword, risking long-term revenue stability for short-term debt relief. Balancing innovation with operational sustainability will be critical for Lumen’s future trajectory.
