Lumen Technologies slashed the target for its residential Quantum Fiber expansion from 12 million to between 8 million and 10 million after pausing its build last month to zero in on locations with the potential to deliver better profitability. The shift appears to be the first of many for Lumen as the company embarks on what new CEO Kate Johnson called a “year of rapid change.”
Speaking on the company’s Q4 earnings call, CFO Chris Stansbury noted that given Lumen ended Q4 2022 with 3.1 million passings, its new plan calls for deployments to roughly 5 million to 7 million incremental locations over the next few years. He added that the decision to lower its build target is designed in part to ensure it’s not laying fiber just for the sake of it.
“We need to make sure that we remain focused on those large metros that we've talked about and that we stop being so focused on a cost per enablement and on a number of enablements and more around making sure that in those markets that we're serving, that customers are going to want our product,” he explained.
While the move may be “painful in the near term,” Stansbury said he’d much rather “have this conversation today than one five years from now where we hit $1,000 [per passing] and we hit the 10 million enablements, and then you guys are asking me where the annuity stream is on all that fiber.”
Stansbury said Lumen expects to get to scale with its new build plan late in 2023 and add a total of 500,000 new passings for the full year.
'Cannibalization is good'
On the call, Johnson noted plenty of other changes are on the way as Lumen works to refocus around five core priorities. These, as she stated during an investor conference in January, include an obsession with solving customer problems, innovating and investing for growth, building a reliable execution engine, simplifying the company’s offerings and IT infrastructure, and internal culture development.
It is also going to work to counteract negative trends it is seeing in its “Harvest” bucket of dying product sets. Stansbury said part of this work will include targeted efforts to migrate legacy customers to newer products. This could include, for instance, moving a legacy VPN customer to IP or wave services coupled with security.
“There's this fear of cannibalization. And I want to be really loud in saying cannibalization is good because if you can keep that customer for longer and you can manage that migration, you're going to be much better off,” he said. “That's something that hasn't been a key focus, and I think that's some of the low-hanging fruit I talked about.”
With all the changes, Johnson and Stansbury said they expect Lumen will achieve revenue and EBITDA stability by the end of 2024.
Lumen reported Q4 2022 revenue of $3.8 billion, which was down from $4.8 billion the year prior. It also swung from net income of $508 million to a net loss of $3.1 billion, thanks primarily to a $3.27 goodwill impairment charge related to its North America business unit.
It added 97,000 new Quantum fiber passings in the quarter and 19,000 new customers, ending Q4 with 832,000 subscribers.
As it overhauls the business, Lumen said it expects to spend $2.9 billion to $3.1 billion on capital expenditures, including $250 million to $350 million on optimization investments.