Lumen Hits Fiber High, Despite Q1 Loss of Legacy Customers

WASHINGTON, May 1, 2024 – Lumen Technologies attributed the 12 percent decline in its reported first quarter revenue and drop in net income to strategic shifts the company is making to maintain competitiveness in the broadband market.

As the company continues to transition away from offering legacy copper technologies, it has established a strong presence in fiber-based broadband services, estimating a current market penetration rate of around 25 percent. In contrast, its market penetration in traditional copper broadband is less than 10 percent.

Lumen achieved its best quarter ever in terms of acquiring new fiber internet customers. The company added 36,000 new fiber subscribers and expanded its fiber coverage to an additional 129,000 locations in the first quarter ending on March 31. 

This growth brings Lumen's overall fiber customer base to 952,000 and extends the total number of Lumen’s fiber locations to 3.8 million, marking an increase of 526,000 locations compared to the same quarter last year.

The company saw an 11.8 percent increase in revenue from fiber broadband compared to the same quarter last year, now making up about 35 percent of the company’s total broadband revenue in mass markets. The average revenue per fiber user remained stable sequentially but rose year-over-year to approximately $61 in the first quarter.

Lumen's remaining broadband revenue stems from its DSL, satellite, fixed wireless, and ethernet services. Presently, the company boasts 1.75 million subscribers for these broadband services, although this number has been consistently decreasing. Since the first quarter of 2023, Lumen has experienced a loss of 367,000 subscribers across its alternative internet offerings.

“I'd say generally these are the industry declines that I think everybody's talking about,” chief financial officer Chris Stansbury said during Lumen’s first quarter earnings call on Tuesday. “Customers are leaving legacy telecom services and we expect that to continue. 

“The more important point,” Stansbury continued, “is that we're changing the game and focusing on bringing newer products consumed digitally that meet the needs of customers today, rather than the needs of customers from the past.”

Despite Lumen’s fiber achievements, the company experienced a 12 percent decline in year-over-year revenue, totaling $3.29 billion. Lumen reported a net income of $57 million for the first quarter of 2024, a significant decrease from the $511 million net income reported for the first quarter of 2023.

Company executives said Tuesday that around 34 percent of the decline was attributed to divestitures, post-closing commercial agreements, and the sale of contracts related to content delivery networks.

Lumen’s first quarter was marked by significant strategic activities, including the finalization of Transition Services Agreement transactions as part of the company’s strategy to address debt. 

The restructuring addressed over $15 billion of debt, and pushed back maturities of more than $10 billion, originally due within the next four years, to 2029 and beyond. Additionally, it secured $2.3 billion in fresh liquidity to bolster support for growth initiatives.

Since divesting the majority of its traditional incumbent local exchange carrier business in 2022, the company has undergone restructuring to offer a comprehensive range of communication services. These services, which include colocation and data center services, data transportation, and end-user phone and internet service, now constitute 80 percent of the company's revenue.

As they move ahead, company leaders said they are exploring all potential avenues to ensure Lumen maintains relevance in the broadband and tech sectors.

They mentioned they are open to strategic fiber acquisitions similar to T-Mobile’s joint venture to purchase network operator Lumos, which was announced last Thursday. Lumen is targeting to expand its fiber capacity to an additional 500,000 locations this year.

The company heads said they are also seeing an increase in demand for custom private networks from big technology and cloud companies that need to interconnect their data centers.

“They're coming to us for a couple of reasons,” chief executive officer Kate Johnson said. “We have conduit so there's the ability to continue to overflow fiber and gives a lot of flexibility and room to grow.

“While we experienced some expected headwinds in the first quarter, we accelerated North America Enterprise sales to fuel future revenue streams, drove material improvement in customer satisfaction scores across customer channels, and delivered our best-ever reported Quantum Fiber broadband net additions,” Johnson said. 

“This progress, coupled with executing our debt restructuring and strategically shape shifting to drive cost efficiency, gives us line of sight around our expectations for improving financial results in 2024 and beyond.”