Lumen Woes Continue - Part 1

Lumen continues its restructuring. It aims to sell its consumer fiber division to AT&T for a rumored $5.5 billion dollars. It sold its European and South American assets as well as its Atlantic cables over the last 24 months. In 2021 Lumen solds it local exchange assets, the old Centurylink copper line business, for $7.5 billion. Lumen is paying a high interest rate on its recently renegotiated debt of $17.5 billion. It is under severe pressure to continue paying down debt while also investing in network infrastructure. Lumen once had aspirations of being a global telecom player. It built South American and European networks from scratch during the New Millenium telecom frenzy. The carrier acquired a host of distressed competitors including Global Crossing, Progress Telecom, and US CLECs. In turn, Centurylink bought Lumen in a friendly merger in 2017. The idea was to infuse capital into the so-called sexy fibre optic business. The underlying idea was that Centurylink had a lot of cash, but poor future growth prospects as a local exchange carrier. Lumen was in the right space, but was cash poor. It was viewed as a match made in heaven.

Lumen has been bedeviled by poor management.

1. Lack of focus: it offers virtually every service under the sun. Management keeps chasing the latest fads in network technology like networks as a service and AI as opposed to running a lean, mean network machine. New services have not generated sufficient revenue to offset declines in the core Layer 1 and 3 services.

2. The Centurylink core business of local residential and business services over copper trunks is eroding due to broadband competition, but also suffers from little organic growth. Most so-called local phone traffic rides mobile networks now.

3. Lumen is highly bureaucratic. It has many layers of middle management. There is a meeting culture where personnel jump from meeting to meeting in order to position themselves for the next promotion. Staff falls behind on their work because they spend too much time in meetings. The new CEO has not yet tackled that problem. Probably thousands of jobs can be eliminated via smart integration. Lumen operates as separate departmental islands with no common purpose.

4. Solid network management, but very slow provisioning. Layer 1 and Layer 3 service orders take months to be delivered. This has been going on for 20 years. I once sold a back up South American circuit for a US low latency trader that took over four months to be provisioned. It was a monument to poor coordination. The first thing that capable management should do is focus on performance. Why management has ignored this problem for decades leaves me flabbergasted. 

5. A chronic inability to integrate and fully exploit acquisitions. Lumen has five separate networks as a result of asset purchases dating back to 2011 that have never been integrated. The new CEO estimates that integration would save one billion dollars each year in operating expenses. So that is a $14 billion cumulative loss. Enough to have eliminated most of Lumen's current debt. These island networks include Centurylink, Global Crossing, Qwest Networks, Time Warner Telecom, Progress Telecom, and others. I believe senior management in the carrier space spends too much on branding and public relations. The focus should be operational excellence. The right path to follow is to have fewer employees, better paid and educated, that are tightly integrated. 

Lumen's Gross Margins: 2009-2024


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