Lumen Technologies recently announced it would reduce its Quantum Fiber build pace in 2024 from 800,000 to 500,000 new locations. Earlier this year, the company revealed plans to cut back its multi-year passings target.
These reduced build targets beg the question: What are Lumen’s long-term plans for Quantum Fiber?
In a note to investors last week, New Street Research’s Jonathan Chaplin suggested if Lumen’s management “is pulling back on fiber deployment because they are resource constrained, they are probably better off selling the asset to someone with the requisite resources.”
“The asset is worth more to someone who can invest in fiber, ward off over-builders in doing so, and pursue the BEAD opportunity,” Chaplin wrote.
The idea isn't entirely far-fetched as Lumen of late has been unloading certain assets. This month, it closed a $1.8 billion sale of its EMEA business to Colt Technology Services. Prior to that, the company announced it will sell the majority of its CDN contracts to Akamai. And in 2021, it offloaded its (mostly copper) ILEC assets in 20 states in a $7.5 billion deal with Apollo Global Management. Apollo took those assets and formed Brightspeed, a new broadband competitor led by ex-Verizon executives.
But what about Quantum Fiber? A Lumen spokesperson declined to comment on whether the company has considered making a sale, stating only “Quantum Fiber is a key part of our growth strategy and an important part of our business.”
Oh, the possibilities
Since Lumen is focusing its resources on enterprise, Chaplin half-jokingly suggested a “trade” in which Lumen could “take Verizon’s enterprise business in exchange for mass markets.”
“We were musing last week about the revaluation that Verizon might enjoy following a divestiture of enterprise,” he wrote. “Synergies would be enormous, on both sides.”
MoffettNathanson analyst Nick Del Deo told Fierce Lumen has been “fairly transparent” in saying it’d be open to selling its ILEC assets “at the right price.”
To be clear, the ILEC assets aren’t the same as Lumen’s Quantum Fiber assets, as Quantum “represents portions of the ILEC footprint” that have been upgraded to fiber and Lumen “can’t split those out from the remainder of the ILEC assets” as they are “inextricably linked.”
Because “so little” of Lumen’s footprint has been upgraded to fiber (around 16%), Del Deo thinks its ILEC assets “would presumably fetch a relatively low multiple.”
“Any buyer would bake in the cost of and risks associated with deploying fiber, and the tax basis of the assets is presumably modest, so the taxes on a sale would meaningfully reduce the net proceeds to Lumen,” he said.
Supposing Lumen entertained the idea of selling Quantum Fiber, Del Deo said a private buyer is the most likely candidate. Companies like AT&T and Frontier are investing “a great deal” to upgrade their footprints from copper to fiber, “but they have a lot of wood to chop as-is.”
T-Mobile, which is continuing to dive into the fiber market, would likely view the buy as “strategically irrelevant,” as Quantum Fiber reaches “a low-single digit share” of U.S. homes.
As of the end of Q3, Lumen had 896,000 fiber broadband customers.
“Private buyers have had interest in this type of asset and would argue that a long-term investment and turnaround stories like this one, which would be capital-intensive, would best be undertaken outside of the glare of public investors,” he concluded.