AT&T eyes $5.5bn deal for Lumen’s broadband unit

• US network operator Lumen Technologies is focused on its growth potential in the enterprise services market
• It has been looking to sell its Mass Markets division since late last year
• Reports suggest AT&T is in exclusive takeover talks, but the reported price tag appears to have upset Lumen’s shareholders   

AT&T is in exclusive talks to potentially acquire the consumer broadband business unit of US network operator Lumen Technologies for about $5.5bn, according to Bloomberg (subscription required), which noted that the talks are still ongoing and might not lead to an M&A agreement. 

Lumen, which is focusing its strategy on its enterprise services portfolio, has been seeking a buyer for its Mass Markets division, which serves consumer and small business customers, since late last year: In November, CFO Chris Stansbury told attendees at the Bank of America’s Leveraged Finance Conference that while the consumer division was “a great asset”, the capital return on residential broadband investments is about nine years as opposed to the return on investment being between 18 months and three years in the enterprise services sector. As a result, Stansbury noted that the Mass Markets division is “probably better suited in somebody’s hands that has a wireless offering”. 

That somebody looks like AT&T, though neither party is commenting on the Bloomberg report. And with a $5.5bn price tag, the giant US operator looks to be on course to strike a favourable deal, albeit for a business that has been shrinking during the past year. However, Lumen’s fixed broadband access network is increasingly fibre-based, which is what will attract potential suitors, such as AT&T. 

At the end of 2024, Lumen’s residential broadband network reached 21.97 million premises across 16 US states (mainly in the north and west but also in Florida – see this map published when Lumen sold a chunk of its broadband network in 2021). Of that total, 4.16 million premises were passed by fibre lines , while 17.81 million were passed by legacy copper lines. Importantly, the number of premises passed by fibre is increasing (up by 501,000 in 2024) while the number reached by copper is decreasing (down by 327,000 in 2024). 

At the end of 2024, Lumen’s Mass Markets division boasted 2.55 million customers, of which 1.08 million were fibre broadband users and 1.47 million were hooked up to legacy copper lines. The number of fibre broadband customers increased by 161,000 last year, while the number of copper broadband subscribers fell by 373,000. 

For the full year 2024, the Mass Markets division generated revenues of $2.75bn and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $1.45bn, down by 7.7% and 4.2% year on year, respectively. 

Although it is shrinking, the business has potential and, arguably, its prospects could be enhanced by AT&T, which would bring additional economies of scale to it and be able to offer mobile services in addition to the fixed line offerings. AT&T’s fibre access network currently reaches 29 million premises across the US and ended 2024 with 9.3 million fibre broadband customers, of which 3.7 million also subscribe to AT&T’s mobile services.  

But news of AT&T’s interest delivered a hammer blow to Lumen’s share price, which plummeted by almost 10% to $4.40 on the New York Stock Exchange on Tuesday following Bloomberg’s report of AT&T’s interest. The likely reason for that is the proposed valuation: When news emerged late last year that Lumen had hired Goldman Sachs to find a buyer for its consumer services business, valuations of between $6bn and $9bn were being reported. 

In the meantime, the Lumen Technologies team continues to focus its efforts on the provision of high-capacity datacentre-to-datacentre connectivity to the big tech and large enterprise community. Earlier this year the company announced plans to increase its capital expenditure (capex) budget by 30% to $4.2bn for 2025 in order to meet the intercity network services needs of its major customers and capitalise on the growing demand for AI-fuelled data network capacity – see Lumen ramps up capex by 30% to build a ‘backbone for AI’.

 - Ray Le Maistre, Editorial Director, TelecomTV