AT&T (T) Bank of America’s 2024 Media, Communications and Entertainment Conference summary

Industry news and strategic context

• Verizon announced the acquisition of Frontier at an 8.4x EBITDA multiple, highlighting the value of scale in fiber and wireless networks and affirming the strategic direction of major telecom players.

• Lumen's mass market business, with about $1 billion in EBITDA and 10 million homes in its footprint, is under increased industry attention, but Lumen remains focused on enterprise rather than consumer consolidation.

• Lumen's fiber penetration is strong, with 1 million fiber customers and 4 million fiber-enabled homes, but investment pace has slowed to 500,000 homes passed per year to prioritize enterprise opportunities.

• Recent M&A activity and rising interest in fiber assets are driving up valuations and strategic interest across the sector.

Business model evolution and investment priorities

• Lumen is prioritizing enterprise network innovation, leveraging its unique intercity conduit and digital networking capabilities to win large-scale contracts, including a recent $5 billion set of deals.

• The company is monetizing existing conduit assets with minimal incremental investment, focusing on high-margin, long-term contracts with hyperscalers and cloud providers.

• Lumen's enterprise strategy includes digital networking, edge compute, and security, aiming to enable on-demand, flexible connectivity for large enterprises.

• The mass market (consumer) business is seen as non-core, with Lumen not planning to be a consolidator in that space.

Financial outlook and capital structure

• Lumen recently announced an exchange offer to address near-term debt maturities, using secured debt to preserve cash and optimize capital structure.

• The $5 billion in new contracts is expected to generate high-margin cash flows, with payments received in advance of construction outflows, and further $7 billion in similar opportunities are in the pipeline.

• EBITDA guidance for 2024 was lowered, with further pressure expected in 2025 due to increased OpEx for network unification and construction ramp-up, but a V-shaped recovery is anticipated in 2026 as cost savings materialize.

• Revenue growth from new digital and enterprise services is expected to offset legacy declines by 2028.