Lumen’s CFO: Quantum Fiber Represents a Growth Opportunity Along Several Fronts

The telco continues to attract broadband subscribers that purchase 100 Mbps packages and above. 

  • Lumen

Lumen sees new potential for its emerging consumer fiber-to-the-home (FTTH) business Quantum Fiber, a trend that continued to emerge in the fourth quarter.

In 2020, the service provider passed an additional 400,000 homes with fiber to now reach 2.4 million homes, up from 2 million at the end of 2019. It currently has over 675,000 FTTH customers and has enabled 2.4 million sites.

But Lumen’s CFO Neel Dev, told investors that the telco has a long runway to further expand its FTTH broadband base and market penetration, which now stands at 28 percent.

“Quantum Fiber represents a growth opportunity for us along several fronts. Fiber-enabled homes are less than 15 percent of our footprint, and we continue to invest with our micro-targeting strategy,” Dev said. “Given that a significant number of enabled units were added in the past couple of years, driving up penetration represents a near-term addressable market opportunity.”

He added, “we have deemphasized low-speed offerings over fiber, and our typical new sales ARPU now is generally higher than our base, representing another potential opportunity to improve the business.”

Higher Speed Adoption Rising

CenturyLink’s efforts to expand its FTTH network is also paying off in attracting more subscribers to sign up for higher speeds.

Lumen ended the quarter with a total of over 4.5 million consumer broadband subscribers. Like earlier quarters, Lumen reported that it shed lower speed subscribers while gaining higher speed customers.

During the fourth quarter, Lumen added 54,000 subscribers that purchased 100 Mbps and higher speed tiers. However, it lost a total of 19,000 broadband subscribers. This was due to a loss of 57,000 subscribers that were on 20 Mbps and below plans and 20-99 Mbps plans. It also added 38,000 subscribers that purchased 20 Mbps and above.

Dev said that “14 percent of our total broadband subs now have greater than 100-meg speeds compared to 5 percent at the beginning of last year.”

Broadband revenue for the fourth quarter grew 1.8 percent year-over-year to $731 million while consumer revenue declined .8 percent to $1.3 billion. 

“The revenue performance has been driven by our micro-targeting efforts, our ongoing focus to improve customer experience and driving up penetration of our competitive assets,” Dev said.

Jeff Storey, CEO of Lumen, said that its FTTH and business network roll outs will continue to resonate with businesses and employees.

“Over the last few years, we have invested in adding new on-net buildings, deploying the latest in fiber technology in our long-haul network and expanding our fiber to the home footprint,” Storey said. “In short, as customers return a portion of their workforce to the office, we are well positioned to provide their work-from-anywhere solutions. As employees and students continue to work and learn remotely, we are excited about our symmetrical broadband solutions for the home.”

Multi-Faceted FTTH Expansion

As Lumen expands its FTTH reach, the service provider is building out facilities in a myriad of situations inside and outside its wireline telco footprint—new construction, overbuilds in existing areas and expanding outside of its traditional footprint.

Like other providers, CenturyLink’s initial FTTH target is Greenfield housing developments.

“As homes grow in a market, we focus on making sure that we're building into those subdivisions with fiber,” Storey said. “It's a big part of our fiber expansion plan, making sure that when it's cheap to build and before homes get there, that we build the right infrastructure and to grow them.”

Storey added that while a large portion of its fiber expansion is in markets where it is an incumbent provider, it is finding opportunities to penetrate MDUs in other markets.

“Most of the fiber expansion is in our footprint, but not all of it,” he said. “If you look at MDUs outside of our footprint, we think we have great fiber penetration in markets that we don't have consumer customers today. And so, we go to those MDUs though and say we want to serve you in this market.”

And while Lumen typically builds FTTH itself, it is amenable to working with others like Springfield, Missouri’s Springfield City Utilities. In 2019, the telco became the first anchor tenant on the utility’s citywide broadband network. Lumen will build and own the final drops to connect homes and businesses throughout the city and provide services.

“We've actually partnered with some communities like Springfield, Missouri, where we went and overbuilt the two providers that were there in conjunction with the city to expand our capabilities,” Storey said.

Regardless of the model, Storey said that any FTTH build is based on how it can drive revenue growth with a cost of capital and low opex.

we view every opportunity through that lens: how do we make sure that we use our capital efficiency -- efficiently and how do we make sure that we get the penetration that we want.

Broadband Leads Consumer Segment

In the consumer segment, Lumen’s results were mixed with broadband being the clear revenue leader. The telco reported consumer broadband revenue rose 1.8 percent to $731 million.

Dev said broadband revenue performance in the fourth quarter was “driven by our micro-targeting efforts, our ongoing focus to improve customer experience and driving up penetration of our competitive assets.”

However, it saw voice, regulatory dip 2.5 percent to $391 million, while regulatory and services like consumer retail video dropped .7 percent and flat for the quarter, respectively. As a result, Lumen’s consumer revenues dropped .8 percent quarterly to $1.3 billion.

Financials: Total revenue was $5.12 billion for the fourth quarter 2020, down from $5.31 billion for the fourth quarter 2019. Lumen reported a net loss of $2.29 billion, compared to net income of $223 million for the fourth quarter 2019.

(To keep up with the Q4 broadband earnings, make sure to check out our new report From AT&T to Verizon: Sizing up Q4 Broadband 2020 Earnings)

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