Eventually, Lumen Technologies will go back to the future, reversing its mashup of focused data transport and enterprise customer base with legacy telco local access businesses.
Right now, Lumen arguably is too small to compete with the likes of AT&T, Verizon and T-Mobile, but too large to effectively compete with local internet service providers.
And if Lumen separates its data transport from local access businesses, it will recreate its existence as a bigger version of Level 3 Communications, but shedding its legacy in the local access business. Still, it will be a smaller company than it is today.
The reason is simply that the capacity business is smaller than the mobility and consumer communications businesses Lumen will leave.
Looking at data transport revenue for major U.S. fixed network providers in 2023, excluding mobile revenues, Lumen’s position is arguably quite different from that of AT&T and Verizon. Because both of the latter firms have such huge mobile services businesses, the data transport portion of total revenue is relatively smaller than at Lumen.
Though business revenues represent about 30 percent of Verizon’s revenue, and about the same percentage at AT&T, business revenues are 45 percent of Lumen Technologies revenue. Data transport is a portion of total business revenue.
With the caveat that it can be difficult to separate out data transport revenues, such revenues are likely in single-digit billions of dollars for leading transport providers in the U.S. market.
The point is simply that Lumen Technologies is different from the other noted providers in having a relatively small consumer business to rely upon for revenue generation. And that consumer business relies principally on the local access facilities, not the wide area data transport network. The other providers have substantial consumer revenue operations in both mobility and fixed network realms.
Lumen does not have mobile revenue exposure and has a relatively small consumer revenue footprint, as business segment revenues are routinely about 78 percent of total revenues.
That is the result of a sort of “mashup” of data transport assets with a traditional telco base that always was the least-dense of all former Bell company geographies. That also means it is less feasible for Lumen to upgrade its fixed network for fiber services.
For that reason, it always has seemed reasonable to assume that, at some point, the former U.S. West (Qwest) assets would be separated from the core data transport assets.
Looking at the acquisitions and asset dispositions Lumen has made over the past couple of decades, you can see the logic.
U.S. West, the former telco, was acquired by Qwest Communications--a long-haul data transport and metro fiber company, in (2000. That was the first mashup.
Then, in 2011, Qwest was acquired by CenturyLink, a Louisiana-based telecom provider with a largely rural and consumer footprint. That would seem to be a move back in the direction of local access operations. In fact, CenturyLink sought a bigger role in business and enterprise services, but the acquisition of Qwest also gave the new CenturyLink a greater consumer services footprint.
The 2011 CenturyLink acquisition of Savvis gave CenturyLink a bigger footprint in data center, cloud computing, and managed hosting services, rebalancing a bit back to enterprise and business revenue.
But it was the acquisition of Level 3 Communications in 2017 that completed the mashup, given Level 3’s huge presence in long-haul data transport, metro fiber operations and international assets. Level 3 has solely focused on enterprise and wholesale capacity operations, not consumer local access.
The first step towards reconfiguring the asset base came as Lumen divested its local telephone business in 20 states in 2021, shrinking the company’s revenue and highlighting its debt profile.
The next shoe to drop, some would argue, is a separation of the remaining former U.S. West local access assets from the assembled portfolio of global capacity assets. If Lumen retains the capacity portfolio, while shedding the local access assets, it would be a smaller, focused capacity business, as was Level 3 Communications.
Back to the future, in other words.
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