Lumen CEO says its NaaS and PCF platforms offer a return to revenue growth
Lumen is confident it is positioned to take advantage of how the advent of AI has created an urgent need for structural change in network architecture.
While the service provider faces ongoing legacy telecom declines, its investments in its fiber networks to support data centers and the advent of network as a service (NaaS) have put it on the right path.
Speaking to investors during its third-quarter earnings call, Kathleen Johnson, CEO of Lumen, said that its efforts to reduce costs and divest non-core assets like its FTTH business are compelling, the important thing is “the progress we're making to pivot this company back to growth--revenue growth.”
For one, the service provider continues to make progress with its Private Connectivity Fabric platform. Johnson said, “We signed an additional $1-plus billion in private connectivity fabric (PCF) since our last update, bringing the total PCF deal value to over $10 billion.”
Likewise, Lumen continues to make progress in attracting more of its business customers to buy into its NaaS platform. Lumen NaaS has attracted top-tier brands including Best Buy, C3Aero, Churchill Downs ® Racetrack, Clearway Energy Group, Columbia Sportswear Company, Hanmi Bank, IVision, Foot Locker, MTNSat, and Pac-12 Enterprises.
“We continue to scale the adoption of NaaS, reaching more than 1,500 enterprise customers since the launch of this platform,” Johnson said, adding that our “latest NaaS innovation, Internet on-demand or IOD off-net, gives us nearly 100x greater market reach to accelerate digital service sales and revenue growth.”
Ramping NaaS
As Lumen moves forward with its NaaS vision, a key priority is scale.
With the advent of its off-net option, Lumen is making its Internet On-Demand service available to over 10 million new business locations, targeting business buildings and data centers. The Internet On-Demand service offers pay-as-you-go bandwidth, enabling rapid scaling within minutes based on business needs.
Already, the platform is getting the attention of large enterprises like Xcel Energy, Xcel Energy, a major U.S. energy provider that is turning to Lumen Internet On-Demand (IoD) to support its growing digital operations across multiple states.
“We launched IoD off-net, expanding our addressable market by close to 100x, and that's just in the United States,” Johnson said. “Since Lumen NaaS became generally available in January of 2024, the #1 piece of customer feedback has always been, hey, bring Lumen NaaS off net to market, and here we are.”
Lumen’s move to offer NaaS in off-net situations plays to the fact that the majority of its large enterprise customers have a mix of buildings in any geography that are on and off-net.
Johnson said that now that the NaaS platform is more widely available, “it will be easier for our sales force to approach customers because they don't have to pick and choose on-net and off-net,” and they “can just do a total network refresh.”
Disciplined PCF approach
Along with its NaaS platform, Lumen continues to enhance its Private Connectivity Fabric, which is supported by its fiber network.
Besides adding new fiber in existing routes, Lumen is increasing fiber miles 3.9x. Innovation is driving increased fiber density adds up to 4x fiber into each conduit.
These investments are paying off as the service provider closed another $1 billion-plus in PCF deals, bringing its total to over $10 billion with a healthy pipeline of deals remaining.
“Based on our current build schedule, the $10 billion of business in hand plus the existing O&M run rate business for PCF, we expect will yield a recurring revenue stream ranging between $400 million and $500 million by the time we exit 2028,” Johnson said.
Despite the promise PCF has for Lumen, the service provider is focused on pursuing opportunities that can provide a positive return. “We remain deeply disciplined in our approach by only inking deals that are value accretive to Lumen shareholders, even if this means stepping away from an opportunity,” Johnson said. “And the teams are doing a great job building that backbone.”
As of the end of September, Lumen completed over 3,200 miles of overpulls on 27 different routes, about 130% of its 2025 target, with a full quarter left to go for the year. But these builds are not just about over pulls for their hyperscaler and neocloud friends. It also requires upgrades to Lumen’s physical network to support enterprise customers’ Cloud 2.0 needs.
“We’re investing in 3 major fabric infrastructure projects, including rapid routes, data center expansion, and metro expansion,” Johnson said. “Market by market, we're upgrading capacity, increasing data center interconnects, and improving service delivery experience and time frames to help our customers address the urgent needs of AI and multi-cloud architecture.”
Chris Stansbury, CFO of Lumen, agreed and added that PCF is certainly contributing, but it's not driving the total growth.
“When we're talking about getting back to growth, we know that eventually, there's a headwind as those builds come to conclusion and level off,” he said. PCF is a great way to monetize the assets that are in the ground, and this tremendous network that we have the opportunity to run. But they really aren't something that we believe is a significant part of our long-term growth trajectory.”
Wading through legacy revenue challenges
While Lumen is carving a new service and operational path, legacy telecom declines continue to be a near-term reality that the service provider has to face.
During the quarter, Lumen’s business segment revenue declined 3.2% to $2.5 billion. Likewise, the Mass Market segment revenue declined 7.7% to $631 million. Within North America enterprise channels, excluding wholesale, international, and other, revenue declined by approximately 1%.
Wholesale revenue declined approximately 7.6% year-over-year, in line with the company’s expectations. International and other revenue declined 13% or $12 million, driven primarily by managed services, VPN, and voice declines.
Driven by continued strength in dark fiber and IP, Lumen’s American enterprise “Grow” revenue rose 10.5% year-over-year. Overall, including wholesale, Lumen’s North America business revenue declined 2.8%.
“Grow will become a larger percentage of our North America enterprise revenue base over time,” Stansbury said. “We're pleased to share that Grow now represents half of our North America enterprise revenue. This was driven by our core Grow products, with non-PCF driving the largest portion of the increase. The emerging growth of digital has yet to materially impact our revenue performance.”
Lumen’s total reported revenue declined 4.2% to $3.1 billion.
Johnson said that while Lumen continues to carry “the weight of declining legacy telecom revenue, our growing revenue base now comprises 50% of North American enterprise revenue, up from 35.5% just 3 years ago.”
She added that the combination of Lumen Private Connectivity Fabric and Lumen Connected Ecosystem will prove to be a sizable revenue growth source.
“Our early read on growth from all of our digital capabilities includes NaaS, Edge Solutions, Security, and the Connected Ecosystem is somewhere between $500 million and $600 million of incremental revenue run rate exiting 2028,” Johnson said. “And while it's hard to accurately forecast revenue, when you're creating a new market, we do feel good about these numbers, and we'll continue to be super transparent about all of our assumptions and learnings as we go.”
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Sean Buckley
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