Fritzsche’s Forum

The “Ferrari of Fiber” Is Finally Coming Out of the Garage

August 25

Last week, Lumen made an announcement which likely went unnoticed by many but offers hints as to the company’s purest ambitions.  On August 19th, they introduced Lumen Edge Private Cloud.  The new service includes compute, storage, network and security. It builds on the bare metal Edge Compute platform Lumen launched last year, VMware Cloud Foundation and software-defined data center technology. 

The service is expected to meet 95 percent of US enterprise demand within five milliseconds of latency. Lumen has 44 edge nodes deployed in the U.S.  The service is  also available to 2,200 third party data centers   via VMware Cloud on AWS. In a press call with reporters, CEO Jeff Storey noted this was a “unique opportunity to grow our enterprise business by leveraging our expansive fiber network … utilizing our edge computing network to move critical workloads closer to the source of data.”

In an interview with Fierce Telecom Chris McReynolds, Lumen’s VP of cloud edge product management said this is just the “first layer” of Lumen’s drive to stack up the edge infrastructure and discussed plans to launch a multi-tenant virtual machine and an edge orchestrator in early 2022. 

Why is this important?  Well, it represents a canary in the coal mine of things to come.   Don’t be surprised to see Lumen’s future press releases and talking points to very much center around the edge and their role in enabling it.  These talking points get easier to draft now that it is beyond the announcement it will sell 20 of its states to Apollo Global Management.  While that deal will take one year to close, the messaging as to what Lumen is going to be when it ‘grows up’ is much easier to craft now. 

The irony is not lost on me that if Level3 were still standing as a solo company, the press releases that we would have seen from them likely would have been a whole lot like the one we saw just last week.   Simply put, Lumen is boomeranging back to its old Level3 days at the perfect time.  In past reports I used to call Level3 the “Ferrari of Fiber.”  By detaching themselves from a good amount of their copper assets, that engine is poised to rev again!

Importantly, this fiber will be the basis for their enterprise and edge push.  A simple word search of the word “enterprise” in LUMN’s Q2’21 earnings call came up 28 times vs. only nine times for the word “consumer.”  Although Lumen likely will push hard on FTTH initiatives in the remaining states it owns post Apollo (management noted 15MM of the 21MM remaining homes it will keep in its region are investable), the lens in which these consumer projects are viewed will likely have some enterprise “pixie dust” to them. 

At the Cowen conference, Maxine Moreau, Lumen’s President of Mass Markets, acknowledged as such when he said: “about 70% (of consumer homes) would be considered urban and suburban, which makes it the most attractive areas for investment because of the densification as well as the overlap with our enterprise business. We have a lot of network within Lumen and we can leverage that network as we expand our fiber.”  

While it makes total sense, it is a subtle change of tone that should not go unnoticed.  The enterprise hand may be directing the consumer segment….under the “old” CenturyLink model it was quite the opposite. 

Although many may think Apollo got the Lumen divested assets at an extremely low multiple given that FTTH is all the rage, there is an intangible benefit to Lumen that will pay (proverbial!) dividends overtime.  It gives Lumen nimbleness, removes the copper refrigerator from its back and (most importantly) allows it to be front-footed in its fiber lean in.  These are things it has wanted for a LOONNNGGG time – perhaps maybe even since November 1, 2017 – the day the Level3 merger closed! 

Jennifer  is Managing Director at Greenhill & Company.  She focuses on the North American Communications Services & Infrastructure spaces.   Prior to this role, Jennifer was as Managing Director and Senior Equity Analyst at Wells Fargo Securities for 25 years where she focused on the Telecommunication Services, Cable, Data Center and Tower sectors.  During her tenure at Wells Fargo, Jennifer received numerous awards including top rankings from Institutional Investor in the Communications Infrastructure space for each of the last four years (2017 – 2020).

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