It perhaps always is difficult to value copper access lines when considering an acquisition with the intention of upgrading those lines to fiber access. It might also be somewhat difficult to value fiber lines in neighborhoods and parts of cities, even when there is no intention to buy copper lines and upgrade them.
Without question, though, the “upgrade” analysis is more difficult. For starters, not all lines really are candidates for upgrading. In some cases, most lines might not be candidates. In such instances, the “upgrade to fiber” business plan will hinge on a minority of lines.
Assume that perhaps 35 percent to 45 percent of Lumen Technologies' consumer access lines could be profitably upgraded to fiber.
But assume the hypothetical $5.5 billion purchase price of the Lumen “consumer fiber business” by a buyer such as AT&T is reasonably accurate, and only includes the already-built fiber assets and customers.
Without further details, we are left to wonder what assets are included, but It might be reasonable to conclude that it is a “cherry picked” set of assets not including central offices, voice infrastructure and copper lines.
That might be because the clearest economics are already captured by the existing fiber facilities. Back in 2022 Lumen’s fiber-to-home footprint reached about 27 percent of total access lines. By some estimates it is possible that Lumen or another owner could upgrade between 35 percent to 45 percent of consumer access lines to fiber on a profitable basis.
But by some estimates Lumen might have built most of the lines it can in markets where it would be the first fiber provider. In many cases the business case for upgrading and becoming the second fiber provider in a neighborhood might not be attractive.
In markets where a single provider uses fiber, consumer buy rates can hit 40 percent of locations passed. In a market where Lumen is the second provider, it might only get 20 percent take rates.
The flip side is that more than half of all Lumen’s existing copper facilities likely cannot be upgraded for economic reasons.
And the copper-based business continues to decline. In early 2024, Lumen had perhaps 4.2 to 4.6 million consumer access lines generating revenue. By early 2025, this number is likely to have further decreased to 3.6 to four million consumer access lines used by paying customers.
Access Line Type | Total Lines | Total Consumer Accounts |
Total Consumer Access Lines | 8,200,000 | N/A |
Fiber Lines | 3,600,000 | 2,100,000 |
Copper Lines | 4,600,000 | 1,900,000 |
Basically, a buyer intending to upgrade Lumen consumer lines is basing that decision on perhaps 2.9 million to 3.6 million out of 8.2 million lines, conservatively. By some estimates, Lumen might already have upgraded as many as 3.6 million lines, though that figure also includes small business lines that are routinely counted in the “mass markets” bucket.
Perhaps there is some revenue to be generated from the copper lines, but it is a declining resource.
Based on a $5.5 billion purchase price, that implies a per-line investment of between $1897 and $1528 for existing fiber lines, possibly not including any copper lines that are theoretically upgradeable.
We must assume that there are two different types of potential buyers. In one camp are firms that see the potential to increase equity value by upgrading copper access facilities to fiber. In another camp are firms that primarily want the incremental revenue. The former includes firms that see eventual asset sales. The latter mostly includes operating firms in the business for the long haul.
If we assume that Lumen would prefer to get out of the consumer mass markets business altogether, a key issue is whether the rest of the consumer business and facilities (central offices, voice infrastructure, non-upgradable lines) would be retained, spun off to another third party if possible, or bundled on a low-cost basis to a potential buyer that really just wants the fiber assets.
It’s messy. For starters, Lumen (or any new owner acquiring the whole mass markets business) probably would continue to be viewed by regulators as a “carrier of last resort,” meaning it would have to keep offering voice services broadly and might also not be allowed to decommission the copper access network.
An owner might argue it could use other technologies (mobile network, for example) to supply voice and lower-speed internet access service, even if it decommissioned the whole copper network. But regulators have resisted such pleas in the past.
The point is that an acquisition of the Lumen mass markets business would be messy. The value is the fiber lines and potential boost in fiber customers. But getting those lines might also entail getting lots of copper lines that actually cannot be upgraded and have declining value.
And if a potential acquirer only wanted the fiber for internet access and other “data” purposes, the central offices and voice infrastructure would not be very helpful. Beyond that, Lumen’s consumer fiber access lines are scattered about in some neighborhoods in many cities. There are no cities with ubiquitous fiber in place.
Of course, it always is possible that a potential acquirer really only wants the fiber-to-home facilities that already are in place (neighborhoods), with no intent to buy copper lines and upgrade them. That’s arguably an easier business case to make, as there is not requirement for additional capital for the upgrades from copper.
