Lumen Technologies – Q3 2022 Business Update & Competitive Overview

Could you share an overview of Lumen’s operating environment and pull out 2-3 trends or drivers impacting the company?

You mentioned the evolution of the company, highlighting Level 3, CenturyLink and now Lumen today. How has it evolved over time, in terms of also bolstering its offerings and the footprint it now covers?

As you mentioned, Lumen has its business offering and then the mass-market consumer segment. The business segment is the primary revenue contributor, making up about 75% as of most recent numbers. Could you discuss the various dynamics at play here and the company’s offerings within this segment?

Lumen certainly has had some choppy results in recent quarters and years, and management has broken down its offerings to reflect the different success of different groupings of its offerings. Most recently, it splits it up into harvest vs grow vs nurture. You mentioned a couple of the growing businesses that have seen some success, such as SD-WAN [software-defined wide area network]. How is the company thinking about its products outside of that naming approach – those which are generating cash to support the rest of the business vs the real growth drivers and others where it’s looking to optimise, reduce expenses and increase the margins?

What’s your outlook for Lumen’s harvest category products? Would you continue to expect decline, given the revenue from these offerings has declined about 8% YoY.

Are you expecting more of the same, perhaps high-single-digit declines from Lumen’s harvest category? What timeline are you considering given this business is, as you mentioned, eaten into by unified communications and other platforms and companies?

Lumen’s management made a distinction around type of products. How does the nurture category – which includes VPN [virtual private network], data networks, Ethernet, etc – differ from harvest? It similarly has seen declines in recent years and has not necessarily seen the success of some other offerings. How do you think about the nurture category and the longevity of those services?

You mentioned the importance of a strong sales team. What are your thoughts on Lumen’s sales strategy? How well-equipped is the company’s sales team? How effective do you see it as or perhaps what areas might it need to improve upon?

You mentioned a major issue for clients that can undermine credibility for Lumen. Do you think this is an issue which can be solved or that the company can work in the right direction to resolve? What other customer pain points might you see that it should address?

Is Lumen’s issue around organisational stability atypical relative to other players in the industry? Are there certain unique challenges to attracting and retaining talent? What drivers might have been impacting the company’s turnover and ability to build a stable team?

There have been a lot of revenue shortfalls over the past couple of years, and Lumen’s revenue certainly has been declining. Do you think the company can stabilise revenues? If yes, what exactly does it need to do to accomplish that? How long do you think it might take? What key things are you looking at as it tries to stem those declines and return to stability?

You discussed the broader switch from copper onto fibre. Certainly, increasing the fibre build is something Lumen management has talked about a lot and is one of the key metrics always included in quarterly earnings. How have you assessed the pacing of the company’s fibre build-out in terms of the expansion and movement away from copper?

You mentioned seeing Lumen, in some cases, falling over itself for some products and services. Could you expand upon that and which offerings you saw that to be the case with?

What is Lumen’s client mix across business segments? The company has a couple of categories, such as mid-market enterprise, large enterprise and international and GAM [global account management] companies. What are the dynamics at play with this mix? What does the company look to focus on, if it is looking to focus on any one area?

The mass-market consumer makes up roughly one-quarter of Lumen’s revenue. What are your thoughts on the company’s offerings there, primarily looking at traditional connectivity, and its positioning in that space?

You mentioned mass-market has historically not been a very strong segment, but Lumen is still working on its fibre build-out and seeing that being an increasing portion of revenue in the mass market segment. What’s your growth outlook for this part of its business and the company trying to defend the position it does have? Are there certain steps it can take to perhaps be more competitive with this customer segment?

We’ve touched on a number of the competitors Lumen was going up against. How would you break down competition for the company? What are the major differentiators when looking at groupings of competitors?

What would you say is Lumen’s pricing strategy? You mentioned, for some areas such as small-to-mid-sized businesses, it’s not necessarily beating out some cable companies on cost. Does it differ too much from business to mass markets?

Could you discuss the more recent moves Lumen has made around M&A? The company recently had divestments of its LATAM business, as well as ILEC [incumbent local exchange carrier], which went for fairly considerable proceeds between the two, over USD 10bn. What are your thoughts on this divestment and how that positions it going forward?

It sounds as if you were a little surprised by Lumen’s LATAM sale. What might the strategy have been there? Was this a case of prioritising paying down debt vs looking at what is an attractive asset to sell, vs it sounds as if, for ILEC, there could have been more of an advantage to not necessarily being present in those states anymore when it’s looking at improving business health?

How do you think Lumen will be approaching M&A in the future? Do you expect further divestments?

Along the lines of acquisition, you mentioned a Comcast maybe having the pockets and potentially the rationale to justify that. As you mentioned, Lumen is not a small company with about a USD 10bn market cap. Could a deal that size for a player such as Comcast overcome regulatory hurdles? I could definitely see that being a challenge, given the current environment. Do you think that’s a relatively slim possibility or could there be some justification from a competitive standpoint?

What do you see as the largest opportunity and the largest risk for Lumen?