The fourth quarter 2022 Lumen Technologies earnings call was in some ways a study in infrastructure contrasts and an indication that further restructuring could happen.
Lumen is adding about six million intercity fiber miles of capacity by 2026. That supports the part of Lumen’s business built largely around the intercity capacity business in the United States, and global capacity in the northern hemisphere.
Contrast that with what happened to the fiber-to-home program. “As we've said previously, we hit the pause button during the fourth quarter,” said Kate Johnson, Lumen CEO. “Now, to be frank, it was more of a stop button than a pause.”
“A natural outcome of our assessment of Quantum is a more focused build target,” said Johnson. “We believe the overall Quantum enablement opportunity is eight million to 10 million locations.”
For Lumen, that suggests up to half the homes in its service territory are the best chances to monetize fiber-to-home investments. Lumen has an estimated 21 million to 24 residential and small business locations passed by its networks in 16 states.
The latest statements suggest Lumen believes between 38 percent and 43 percent of mass market locations are suitable for FTTH investment over the next half decade or so.
The issue for Lumen, as was the case for the former US West--which has had the least-dense footprint of all the former Baby Bells--is what to do about the rest of the customer base, assuming copper access is not a long term solution.
Divesting rural assets already has been the answer, as Lumen sold off access assets in 20 states. That raises the theoretical possibility that Lumen sells still more of its rural assets over time, as about 60 percent of its local access locations are deemed insufficiently profitable to serve with FTTH facilities at the moment.
Keep in mind that 79 percent of Lumen’s revenue is earned serving large and mid-sized business customers. Most of that revenue comes from the intercity network and local connections and services to customers in the larger urban markets.
Much small business revenue is counted in mass markets, where, increasingly, revenue is anchored in fiber-based internet access (home broadband) of about $60 a month.
FTTH investments rarely offer a “no brainer” business case. In Lumen’s case, the issue will be what to do about the 60 percent of mass market locations that do not seem amenable.
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