Why Product Bundling is Key to Payoff from AT&T Purchase of Lumen Consumer Fiber Assets

Lots of observers argue that the Verizon purchase of Frontier Communications assets (buying back an asset it had previously sold off) is not a wise use of capital, with the arguments often suggesting Verizon should be investing more in artificial intelligence in some way.

Of course, there is an argument to be made that such forays into applications, content or additional roles in the value chain have not worked out very well.

And some of the same questions are raised about AT&T's purchase of Lumen Technologies mass market fiber-to-home assets. The concern is that the purchase will not have a near-term impact on profits and could be a case where the opportunity cost is too high.

AT&T believes it can justify the purchase of Lumen Technologies consumer fiber business based in part on the ability to drive higher revenues by bundling mobile services, and also boosting take rates from the current 25 percent level to perhaps 40 percent. 

But other buyers without the ability to bundle with owned mobile services also could have interest in acquiring significant copper access assets and then upgrading for fiber access. In many cases the upside comes more from asset value increases than actual operating cash flow or profits, though. 

As always, much hinges on the assumptions. Assume a copper access asset with:

• 500,000 copper broadband and voice customers, with 80 percent convertible to fiber over 10 years (much higher than AT&T expects with its bundled services approach)

• Copper assets are valued at 4–8x EBITDA. Assuming annual EBITDA of $100 million for the copper business, acquisition cost is estimated at $600 million (6x EBITDA).

• Fiber Upgrade Costs: 800–$1,200 per home passed, plus $300–$500 per connected subscriber. Assume $1,000 per home passed and $400 per connected subscriber.

• Revenue: Copper ARPU (Average Revenue Per User) at $40/month, fiber ARPU at $60/month. Fiber adoption grows linearly to 80 percent (400,000 customers) by year 10.

• Copper maintenance costs are high ($300/customer/year), while fiber reduces this to $100/customer/year.

• CapEx: Fiber deployment spread over 5 years, with 20 percent of customers upgraded annually.

• Financing: 50% equity, 50% debt at 5% interest rate.

• Depreciation: Fiber assets depreciated over 20 years (straight-line).

• Market Dynamics: Copper demand declines 5% annually; fiber demand grows with 10% annual subscriber growth post-upgrade.

• Copper Recycling: Recycled copper yields $7,000/ton, with 5,000 tons recoverable (based on scaled-down estimates from TXO’s $7 billion market potential for 963,000 tons).

Perhaps the key sensitivity here are take rates. The business model here assumes take rates at 80 percent in a decade. That is more likely for rural and other lower-density markets, where competitors are deterred from investing. It is hard to imagine such take rates in competitive urban markets. 

Component	Details	Year 1	Year 5	Year 10
Acquisition Costs
Purchase Price	6x EBITDA ($100M) for 500,000 customers	$600M	$0	$0
Transaction Costs	Legal, advisory fees (2% of purchase price)	$12M	$0	$0
Total Acquisition Cost		$612M	$0	$0
Fiber Upgrade Costs
Homes Passed	$1,000/home × 500,000 homes (spread over 5 years, 100,000/year)	$100M	$100M	$0
Subscriber Connections	$400/subscriber × 100,000/year (20% of customers annually)	$40M	$40M	$0
Equipment & Installation	Network upgrades, ONTs, etc. ($200/home × 100,000/year)	$20M	$20M	$0
Total Upgrade CapEx		$160M	$160M	$0
Revenue
Copper Revenue	$40/month × 500,000 (Year 1), declining 5%/year	$240M	$193M	$144M
Fiber Revenue	$60/month × 100,000 (Year 1), growing to 400,000 by Year 10	$72M	$288M	$288M
Copper Recycling Revenue	5,000 tons × $7,000/ton (one-time, Year 1–2)	$35M	$0	$0
Total Revenue		$347M	$481M	$432M
Operating Expenses (OpEx)
Copper Maintenance	$300/customer × remaining copper customers	$150M	$90M	$30M
Fiber Maintenance	$100/customer × fiber customers	$10M	$40M	$40M
General OpEx	Marketing, admin (10% of revenue)	$34.7M	$48.1M	$43.2M
Total OpEx		$194.7M	$178.1M	$113.2M
EBITDA	Revenue – OpEx	$152.3M	$302.9M	$318.8M
Cash Flow Implications
Operating Cash Flow	EBITDA – Taxes (25%)	$114.2M	$227.2M	$239.1M
Free Cash Flow (FCF)	Operating Cash Flow – CapEx – Interest ($30M/year, 5% on $600M debt)	-$75.8M	$37.2M	$239.1M
Profit Implications
Depreciation	$612M acquisition (20 years) + $800M fiber CapEx (20 years)	$70.6M	$70.6M	$70.6M
Net Income	EBITDA – Depreciation – Interest – Taxes	$51.7M	$166.6M	$182.5M
Equity Increase Implications
Enterprise Value (EV)	10x EBITDA (fiber) + 6x EBITDA (copper)	$1.05B	$2.45B	$2.94B
Equity Value	EV – Debt ($600M)	$450M	$1.85B	$2.34B
Equity Increase (from Year 0)	Initial equity investment: $306M (50% of acquisition)	$144M	$1.54B	$2.03B

Thinking and Writing Skills Probably are Linked, but Not All Writing Requires Much Thinking

One concern often expressed about the use of language models is that when used as a substitute for a person’s own writing, critical thinking skills suffer. And, to be sure, lots of studies suggest there is a link between thinking and writing. 

My own view (as a former teacher) is that “people who do not write well do not think well.” So yes, substituting language models for one’s own writing is not helpful for purposes of building and maintaining critical thinking skills. 

Study	Focus	Key Findings	Source Link
Using Writing to Increase Critical Thinking Performance in General Education Biology	Examined the effect of a laboratory writing treatment on the critical thinking performance of biology students.	The writing group showed significant improvement in critical thinking skills, specifically in analysis and inference.	National Institutes of Health (NIH)
The Correlation between Critical Thinking and Writing Ability in English	Explored the relationship between critical thinking and writing ability among English educational program students.	Found a significant positive correlation between critical thinking and writing ability (r=0.362, p < 0.05).	ojs.fkipummy.ac.id
Relationship Between Perceived Students' Critical Thinking Skills and Academic Writing Skills	Investigated the connection between students' perceived critical thinking skills and their academic writing performance.	Found a strong positive correlation (r=0.722, p < 0.01).	ResearchGate
Cognitive ability influences on written expression	Tested models including the influence of cognitive abilities and general intelligence on writing skills in children and adolescents.	Showed that various cognitive abilities differentially influence writing skills and that these effects can vary by age.	ScienceDirect.com
Writing as a Thinking Tool - MSU Denver	Discusses the use of writing to develop various mental capacities, including critical thinking.	Highlights studies suggesting that writing improves critical thinking performance.	MSU Denver
Cognitive Styles and Influences on Academic Writing	Examined the impact of cognitive styles on writing performance.	Suggests that cognitive styles can influence writing performance.	ResearchGate
Learning through Writing: Teaching Critical Thinking Skills in Writing Assignments	Explores the role of writing-to-learn approaches in fostering critical thinking skills, particularly in the context of writing assignments.	Argues that writing can act as a "unique mode of learning," supporting the development of critical thinking abilities through the act of composition.	Cambridge University Press & Assessment
Critical Research Thinking: A Recipe for Academic Writing Success	Emphasizes the importance of critical research thinking for academic writing.	Highlights components of critical thinking as crucial for effective academic writing.	Qeios
Flower & Hayes Cognitive Process Theory of Writing	Explains writing as a cognitive process involving planning, translating, and reviewing.	Focuses on the mental processes behind writing.	Yomu AI
Cognitive and executive processes associated with children's written composition	Investigated the relationship between working memory, long-term memory, planning, and visuospatial perception and writing fluency and accuracy in children.	Found significant correlations between these cognitive processes and aspects of writing.	Ocnos
Understanding the Complex Relationship between Critical Thinking and Scientific Reasoning in Undergraduate Biology Students' Thesis Writing	Examined the connection between scientific reasoning in thesis writing and general and specific critical-thinking skills.	Found that scientific reasoning in writing is strongly related to inference skills.	National Institutes of Health (NIH)
Insight from the association between critical thinking and English argumentative writing among Chinese high school students	Explored the relationship between critical thinking and English writing achievement among Chinese secondary school students.	Found a positive linear correlation between critical thinking and English writing.	National Institutes of Health (NIH)
The link between writing and critical thinking	Discusses how writing facilitates critical thinking by requiring analysis, evaluation, and the development of arguments.	Suggests that writing can help identify knowledge gaps and motivate research.	The Science of Writing
The Writing and Critical Thinking Connection	Highlights the role of audience consideration, revision, and collaboration in developing both writing and critical thinking skills.	Suggests that the writing process encourages metacognition.	Learning A-Z
Why Critical Thinking in Writing Matters for Professionals	Explains the importance of critical thinking in various forms of professional writing.	Suggests that critical thinking helps in analyzing data, assessing risks, making informed decisions, evaluating sources, and constructing arguments in a professional context.	Instructional Solutions
Science of Reading: The Role of Writing (Brief 3 of 7)	Discusses the reciprocal relationship between reading and writing, emphasizing how writing improves critical thinking about texts.	Indicates that as students develop writing skills, they become stronger readers and develop critical thinking about authors' craft.	New York State Education Department (.gov)

On the other hand, not all writing is intrinsically related to critical thinking. Much marketing copy, messaging and simple written communications arguably don’t require much, if any, critical thinking. We might not ultimately find using language models for such purposes has any fundamental harm.

Winston Churchill Mobilizing the English Language

 How can you not love Winston Churchill?

Will AI Disrupt Internet Business Models?

One reason for studying the business implications of artificial intelligence is that we may be seeing a significant shift in the role played by near zero marginal cost in shaping feasible business and revenue models. 

We might all agree that near-zero marginal cost has been fundamental for content, social media and other app pricing and revenue models. Network effects and scale have been fundamental precisely because marginal cost has been so low. 

Low marginal cost arguably is responsible for “winner take all” market structures; the ability to support software products using advertising; the global character of markets and the importance of “time to scale.”

Marginal cost is the cost of producing one additional unit of a good or service. For non-tangible products such as software, streaming, or cloud services, this cost is often close to zero once the initial product is developed and infrastructure is in place. 

Low marginal cost means that digital businesses can grow a user base quickly without proportional increases in expenses. That is vital for businesses built on network effects, where each additional user increases the value for others (social networks, marketplaces).

Also, low marginal cost also means attackers can undercut incumbent pricing levels, often making higher margins on lower retail prices (“free” use and “freemium” models). 

Business Element	Traditional Business	Internet Business (Low Marginal Cost)
Cost per additional user	Increases with scale	Remains near zero with scale
Profit margin	Shrinks with volume	Grows with volume (after fixed costs)
Growth constraints	Physical/logistical	Virtually unlimited (digital)
Network effects	Limited	Strong, self-reinforcing

All that can enable a business model where adding more users means lower average cost per user as scale grows. That is less true for a traditional “physical” model, where cost tends to scale in a more-linear fashion. 

The implication is that AI possibly disrupts many foundational internet app, service and content models, where zero-to-low marginal cost is the economic foundation. 

The essential difference for AI-based models is that very-low marginal cost might not be so substantial.

Large language models incur non-trivial costs for training, inference, and maintenance that arguably are more linear cost drivers than we have gotten used to for many internet apps. 

Unlike traditional cloud-based internet delivered  software, where serving additional users involves negligible database or bandwidth costs, AI inference costs are directly proportional to user activity. 

On the hardware side, AI processing tasks arguably also involve data infrastructure requirements that also scale in a more-linear way. 

Traditional internet platforms might have marginal costs per user interaction estimated at $0.0001–$0.001, for example. 

AI services might have marginal costs per interaction closer to $0.01–$0.50, depending on model complexity and usage patterns.

The business model implications, if this gap does not close, is that AI model marginal costs could be higher by 100 times or more. 

And that could key implications for the value of scale and likely revenue models. Is the internet business model about to be disrupted?