Chris Stansbury, EVP and CFO of Lumen Technologies Inc., led with the execution of the company’s TSA when discussing Lumen’s strategies at the New Street Research Fiber to the Future conference.
“It clears the path; it gives us the financing we need,” he said.
The company has refocused its strategy, bringing several new executives on board in the previous months.
“Smaller, less financially sophisticated customers were concerned about our longevity. The bigger customers that are making multi-million-dollar decisions weren’t concerned about longevity; they were concerned about our focus.”
Despite the TSA, Stansbury reported that Lumen’s guidance holds steady, and he still expects EBITDA to hit its inflection point next year.
“What we intend to bring to market,” said Stansbury, “is deep visibility inside of enterprise: here’s the legacy business, how it’s declining, and how we expect that to play out. Here’s what’s on the truck today and how those rates of sale are improving, and here’s the innovation that ultimately comes behind that. And that’s how we get to that point of inflection.”
The best way to drive returns and improve leverage, is, according to Stansbury, driving the numerator, calling it a much faster path to long-term success than just simply managing the denominator.
“We believe that the business with the innovation, with the lead we already have, will pivot well in advance of any refinances we have to do.”
Retaining CapEx targets
Guidance regarding CapEx hasn’t changed in the face of the TSA completion either.
“The key variables will be if we see any opportunities to expand an offering,” said Stansbury, “but at this point, I’m not signaling that we do or do not see that.”
He explored possible areas where CapEx would be expended, like improving the customer experience.
“They (the Lumen Ops team) are going through product by product and fixing the process before we automate it,” said Stansbury. “An example is DIA circuits, where it used to take us between 50 and 60 days to deliver. We would miss the customer’s delivery date three or four times, we’d often requote because we got that wrong, and we didn’t have a good sense of what our inventory was. The team has completely rewired that process. It’s now down to a little over 20 days—if it’s a NAS circuit, it’s minutes—and our very first delivery through ServiceNow was about five days. So, the investments that we’re making to bring that kind of experience across all our products are really, I would say, what the incremental CapEx is in the near term.”
Consumer versus business
Stansbury also discussed capital allocation considerations when choosing between a quick return without much confidence longevity and a slow return with years of visibility.
“There’s a much greater upfront investment on consumer and a longer payback period, but it goes well into the future,” he said. “Here’s how we look at it: from a competitive landscape, there is going to be a lot of competition around fiber-to-the-home. There’s no question about that. In the enterprise space, there’s not a lot of competition for the kind of offerings that we can bring. So, our ability with that next investment dollar to drive significant disruption and differentiation is much higher in the enterprise space. And that’s where we see the greater return.”
Stansbury relayed that Lumen expects the consumer space will see consolidation soon.
“Now, in the consumer space, again a great business, because of the long payback cycles, that is a sector that’s screaming for consolidation,” he said. “Our belief is that consolidation will happen, and our view is we will not be the consolidator. We have a great asset, we’re going to continue to invest in it, we’re going to continue to build fiber enablements and grow subscriptions, but we’re also going to look for ways to monetize it. Maybe there are ways to wholesale some of that fiber; maybe we do some joint-venture type relationships where we can get a bigger bang for the buck with the capital that’s going into the ground, but the ultimate objective is to continue to build value in that asset, and when the time is right, that’ll be a very attractive asset for somebody, and we can double down on the enterprise.”
Growth areas
Lumen labels its products and services as “grow”—products it is investing in, “nurture”—mature products, and “harvest”—declining products. He described Lumen’s legacy business as a harvest product, and little focus or capital is given to them beyond maintenance.
“When you weigh that in business results and say, ‘well business is decline, how can you be earning a return?’ the things that’re driving the return are really the things in the grow bucket. And its capital going into new installs with customers,” Stansbury said.
Stansbury reports that Lumen’s infrastructure is what sets it apart and what will enable the company to take advantage of growth opportunities as they arise.
“There’s a huge amount of demand for increased networking capacity by hyperscalers and large enterprises, and it’s really driven by AI—you can’t understate the demands for infrastructure that exist, and our infrastructure is the preferred infrastructure,” he said. “It’s not just the capacity, it’s ‘How can I use it flexibly and quickly; how can I turn it up and down; how can I keep it secure?’ We’re the only company that owns a network that’s able to also offer those services.”
It’s Lumen’s unique offering, said Stansbury, that allows it to accommodate the rapid scaling of data.
“When you look at the fact that data centers’ biggest issue is power—that’s the constraint,” he said, “they’re getting further and further away from the point of consumption. You have data needs exploding, data getting further away from where it needs to be, and latency in today’s world becomes a real problem. So, the ability to sit on the most modern network, to move data very flexibly, and very quickly and securely, that’s the big unlock, and we’re the only ones that are really investing in that space, and that’s why we think our moment is now. The environment is right for it, and our service offering satisfies a need that is critical.”
Part of Lumen’s ability to accommodate this growth is recognition of the cloudification of telecom.
“Data centers all used to be sitting inside of large enterprise,” Stansbury said, “and then hyperscalers said, ‘there’s a better way—not for all of your workloads, but for a significant portion—and it’s called cloud.’ And there’s efficiency in that, there’s speed in that, there’s security in that. That’s exactly what we’re going to do to the network, and so it’s not necessarily about increasing total spending on telecom; it’s a shift, and we think we take a lot of share on that.”
Stansbury also reported that Lumen could potentially partner with a Tier 1 wireless carrier for help building out mass market fiber opportunities.
“When you think about the strategic focus,” he said, “those carriers are in a battle for the consumer, right? Our enterprise business is focused in different areas, so logically, they could very well be a suitor or a partner in those kinds of relationships, and so we continue to explore all those options, and there’s lots of work to do, I’d say there’s always a level of dialogue and conversation, but its too early yet to call what we think we’re going to do market-by-market.”
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