Lumen Woes Continue - Part 2

6. Inability to fully exploit and integrate acquisitions. Lumen bought denial-of-service cybersecurity firm Black Lotus in 2015, but the company's full potential has not been realized. Lumen uses Black Lotus for its highly rated IP network, but it has not really fully developed commercial services for this acquisition.

7. Collapse of transit pricing. Cogent and Hurricane Electric has caused pricing to collapse. I just heard of a deal where a client got a 10G commit on a 100G port for $500 a month plus bursting charges at an Amsterdam data center.

8. Inability to control network expenses. The graph below shows gross margins declining sharply over the last 15 years. A lot of that reflects transit and wavelength price declines. But it also reflects the company's arthritic bureaucratic culture: revenue per employee is $509,000 versus over a million dollars for Verizon. Market pricing is often out of a company's control. In the competitive telecom industry there is only one way to handle this problem. Either reinvent yourself, which is hard, or cut costs. Lumen has largely opted for first option when it should be clear that there is no need for these soul sucking middle management layers. Most of these layers are completely intact.

Overall Assessment:

Lumen has a great IP network. In terms of ASN connectedness, it usually grabs the first or second place. BGP connectivity reflects the number of peering relationships plus customers. Lumen has good automation in certain respects such as on-the-spot pricing. But its sale force lacks focus. They try to win deals where they are mostly reselling other networks. 

Technology companies are typically led by engineers, former scientists or computer experts. For example, Google was founded by Stanford computer scientist graduates. American tech companies are not MBA heavy. To innovate you need to have an intimate knowledge of technology. Instead, Lumen is a haven for MBAs and business school graduates. The carrier has lots of empty suits, enough to furnish a major US department store chain. 🙂 This leads to chasing the latest cool technology trend. But the company lacks the expertise to determine what trends are real, to what extent they are real, and how to quickly seize them if real. 

Right now the Lumen rallying cry is cybersecurity and AI. But AI is already showing cracks. As META's chief AI scientist, Yann LeCun, has noted, large language models appear to be a dead end. In contrast, large quantitative models have great potential, but certainly not enough to create higher global growth rates (Microsoft's CEO says that the so-called AI revolution is to be judged by the uptick in real GDP growth rates). Much of Lumen's so-called AI push is simply branding. It is teaming up with Google to bring fibre into Google data centers. We know who will get the better of that deal, namely Google, which is one of the savviest, toughest network buyers on the planet. Google's modus operandi is to pay just enough for the carrier to cover its construction expenses, but no more. So Google functions as a bank for the carriers, but not a source of profit.