Lumen shows fiber progress, asks for patience

During the second quarter, Lumen Technologies expanded its fiber network to more locations and added more customers. The company also touted some of its new products, including its new "network as a service" platform.

Company executives said Lumen remains in the middle of a turnaround it started earlier this year, and it still needs time to finish what it started.

Kate Johnson, Lumen's new CEO, said that the company's plans "will require hard work" and "they're going to take time to deliver results." But, during her company's quarterly conference call this week, she said Lumen's early indications "give us confidence we're on the right path," according to a Seeking Alpha transcript of her remarks.

Some financial analysts agreed.

"Whether one believes or does not believe that Lumen will be able to successfully achieve its vision of a comprehensive turnaround, everyone can probably agree that judging any progress stemming from managerial changes in a business like this takes time," wrote the financial analysts at MoffettNathanson in a note to investors following the release of Lumen's quarterly results. "Lumen's Q2 2023 performance should still be, generally speaking, far more of a reflection of Lumen as it has been rather than Lumen as the new team expects it will be."

The fiber

A big part of Lumen's story involves replacing its aging copper network with a new one running on fiber. And in that regard, the company touted some progress.

Specifically, Lumen deployed fiber to 130,000 new locations during the quarter, a slight acceleration from the 120,000 new locations the company reached in the previous quarter. Lumen officials also continue to expect to ultimately reach up to 7 million locations with fiber by 2027.

Moreover, that fiber network buildout is earning the company new customers. Lumen reported 21,000 new net customer additions in its fiber business.

However, that's below what some analysts had hoped. In a note to investors, the financial analysts at New Street Research argued that Lumen could suffer from the same competitive troubles facing other fiber providers like AT&T and Verizon. "Seasonality will be a factor; the second quarter typically has the lowest [customer] adds of the year; though, based on results so far, seasonality appears to be more muted than in years passed," they wrote in a note to investors. "We suspect at least some of the softer fiber trends have been driven by cable fighting back aggressively with wireless bundles."

Cable companies like Comcast and Charter Communications have reported significant gains in their respective mobile businesses. Such offerings are, in part, designed to bolster the cable companies' broadband businesses against threats from fiber and fixed wireless providers.

The lead

Like AT&T and Verizon, Lumen said that some of its aging network cabling is covered in lead. That could potentially be a concern because no amount of lead is safe for humans.

However, Lumen officials said that less than 5% of the company's roughly 700,000 miles of copper infrastructure poses a problem. "So we don't think that this is a major issue for us, and it's something we'll continue to work on and monitor," said Lumen CFO Chris Stansbury.

Lumen's lead figures are similar to those of AT&T. That company said last month that lead-covered cables represent less than 10% of its total copper network footprint, which spans around 2 million miles of cable.

The situation stems from a series of detailed, lengthy articles by The Wall Street Journal on aging telecommunications cables that may contain hazardous amounts of lead. The publication's exposé acted like a sledgehammer on shares of AT&T, Verizon and other telcos amid reports of cleanup costs totaling up to $60 billion.

Broadly, analysts argued that the lead-clad cable situation isn't as bad as some initially feared. "We continue to believe the matter is a near-zero issue," wrote the financial analysts at TD Cowen in a note to investors following Lumen's results.

The financials

Overall, Lumen reported second quarter revenues of $3.66 billion. That's largely in line with what Wall Street had expected.

"The launch of recent product offerings (including its network-as-a-service offering) will take several quarters to ramp," wrote the financial analysts at Wells Fargo in a note to investors on Lumen.

Regardless, Lumen officials remained positive on the company's outlook, including for its new products.

"Lumen's NAS [network as a service] offering takes that next step to deliver on our customers' networking dreams, the ability to fire up any port, with any service at any time," said Johnson, the company's CEO. "It's your network, your way with the Lumen platform. So I hope that it's clear we're playing to win here. The team and I are super excited by our position and progress, and we'll be sure to keep you updated on our road map as we advance our network-as-a-service platform and capabilities."

But, in evaluating Lumen's overall business, the analysts at MoffettNathanson remained on the sidelines: "It's too early to see any evidence of a turnaround in growth," they wrote.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano