New Lumen Remains a Hybrid, but Barely

Asset reshuffling tends to be rather common in the connectivity business, with occasional bouts of merger unwinding. Consider the proposed sale of Lumen fixed network assets to Apollo Global Management.   

Basically, the deal unwinds the merger of CenturyLink and Qwest fixed network assets (more an acquisition by CenturyLink of Qwest) in 2011. What remains for Lumen are the original Qwest local exchange operations, plus networks in Florida and Nevada that were not part of Qwest.

Perhaps more important is the Lumen retention of the former Level 3 Communications assets. The proposed deal still leaves Lumen a bit of a hybrid: operator of large tracts of rural fixed networks, plus a handful of tier-two cities, as well as a global enterprise services network. 

source: Lumen

As was the case for the assets divided as part of the AT&T divestiture in 1982, observers will argue about which assets are most valuable. The new AT&T--focused on long distance and equipment manufacturing, was the “growth” play. The new Regional Bell Operating Companies were the “value” or “income generating” play, with little expected growth. 

Ironically, the eventual values were reversed. AT&T kept shrinking, while the RBOCs grew by acquiring each other. Eventually, new AT&T was acquired by SBC Communications, which had consolidated BellSouth, Ameritech and Pacific Telesis. 

Nynex was acquired by Bell Atlantic to form Verizon. 

The issue for Lumen is whether, shorn of roughly half of its local exchange assets, it can execute on a growth strategy driven by its enterprise and business customer operations, while shoring up losses in its consumer segments. 

Apollo may see upside from the rural ILEC operations in upgrading internet access while harvesting voice revenues. Still, it is a cash flow play, not a growth story. Lumen, on the other hand, will bank on a “growth” strategy. 

Lumen still remains a hybrid, deriving most of its revenue from its global network and enterprise connectivity services. Still, it remains one of the larger suppliers of fixed network access in the U.S. market. 

Before the sale, Lumen earned about 25 percent of total revenue from consumer services. After the asset dispositions, Lumen might earn about 12 percent of total revenue from consumer local exchange services.

source: Statista

So Lumen remains a hybrid--enterprise services and global networking--but with a 12-percent contribution from legacy consumer fixed network services.