Lumen Technologies Seeks to Sell Consumer Fiber Operations

Shares of Lumen Technologies (NYSE:LUMN) climbed 4.3% following a Reuters report that the company has begun the process of selling its consumer fiber operations. This sale is part of Lumen's strategy to transition away from its legacy mass markets business and to capitalize on the artificial intelligence boom for growth.

The telecommunications firm, based in Monroe, Louisiana, is collaborating with Goldman Sachs to explore potential deals. These could range from selling the entire fiber unit to forming joint ventures or partial stake sales. Discussions are currently in preliminary stages, and there is no certainty that a deal will be reached. The consumer fiber business, which provides high-speed internet to residential customers, might be valued between $6 billion and $9 billion depending on the deal structure.

Lumen's pivot towards AI and technology services has been highlighted by recent contract acquisitions with major tech companies, including Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Alphabet (NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN). These contracts have contributed to a significant boost in Lumen's stock price this year, despite a decline in revenue and an increased net loss in the latest quarter compared to the previous year. Notably, the company's fiber broadband business exhibited a 16.6% growth compared to the same quarter last year.

The decision to divest the consumer fiber operations aligns with statements from Lumen’s CFO, Chris Stansbury, at the Bank of America Leveraged Finance Conference. Stansbury indicated that while the fiber business is a valuable asset, it may be more effectively managed by a company with a wireless offering.

Selling the fiber unit also aims to alleviate Lumen’s considerable debt, which amounted to $18.1 billion as of September 30. In September, Lumen executed a debt swap to extend bond maturities, which resulted in a downgrade of its credit rating by S&P Global Ratings. However, in November, S&P placed Lumen on CreditWatch Positive, indicating a potential credit rating upgrade following its fourth-quarter results, bolstered by recent AI contract wins.

Formerly known as CenturyLink (NYSE:LUMN), Lumen has experienced several strategic transformations over the years, including the 2021 sale of local exchange carrier assets to Apollo-backed Brightspeed for $7.5 billion. The company’s focus on networking and cybersecurity services for major tech firms is part of its broader strategy to move away from its declining legacy business and embrace emerging technology trends.

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