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Lumen aims to reduce debt by selling consumer fiber unit

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Potential acquirers include industry rivals, sources say

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Lumen's AI contracts boost share price, market value at

$5.9

billion

By Milana Vinn

Dec 19 (Reuters) - Lumen Technologies ( LUMN ) has

kicked off a process to sell its consumer fiber operations, as

the telecommunications company looks to phase out its legacy

mass markets business and reduce its sizable debt pile,

according to people familiar with the matter.

The move to offload the fiber business, which provides

high-speed internet services to residential customers, comes as

Lumen is doubling down on the artificial intelligence boom to

power its near-term growth, while grappling with a rapid decline

in sales and profits from its legacy business.

Monroe, Louisiana-based Lumen is working with investment

bankers at Goldman Sachs to gauge interest for the business from

potential acquirers that include industry rivals, the sources

said, requesting anonymity as the matter is confidential.

Lumen could also choose to sell a stake in the fiber unit or

sign a joint-venture deal with a strategic partner, the sources

said, adding that the talks are at an early stage and a deal is

not guaranteed.

The company has been exploring options for the mass markets

business, which houses the fiber operations, since earlier this

year. At the Bank of America Leveraged Finance Conference

earlier this month, Lumen Chief Financial Officer Chris

Stansbury said the fiber business was "a great asset, but an

asset that is probably better suited in somebody's hands that

has a wireless offering."

Any deal would require Lumen to split up its fiber business,

which also offers internet services to large enterprise

customers, the sources said, adding that the company is not

planning to sell the enterprise fiber operations. As of the end

of September, Lumen operated 4.1 million fiber-enabled

locations.

Depending on what parts of the consumer fiber unit Lumen

chooses to sell and how a deal is structured, the transaction

could be valued at $6 billion to $9 billion, the sources said.

Lumen and Goldman Sachs both declined to comment.

STRATEGIC SHIFT

Known as CenturyLink before its 2020 rebranding, Lumen has

changed course several times over the years, most recently in

2021 when the company sold its local exchange carrier assets in

20 states to Apollo-backed Brightspeed for $7.5

billion.

Lumen's legacy business offers broadband, voice and other

services to businesses and residential customers. It owns

underground cables that are leased out through long-term

contracts and helps provide fiber connectivity to customers.

To turn around its fortunes, Lumen has restructured its debt

and signed billions of dollars of new contracts to provide

networking and cybersecurity services to Big Tech companies.

Lumen has also been attempting to shrink its reliance on the

legacy business, which was grown from past acquisitions -

including its $25 billion merger with Level 3 Communications in

2017 - and has declined in value over the years as the

technology has become outdated.

In August, the company secured $5 billion in business from new

customers, including Microsoft ( MSFT ), to provide AI

connectivity to cloud computing data centers. In its latest

quarter, Lumen signed new contracts worth $3 billion, which

included partnerships with Meta, Alphabet and

Amazon ( AMZN ).

The AI contract wins have bolstered Lumen's share price,

which has more than tripled in value this year, giving the

company a market value of about $5.9 billion. Lumen's long-term

debt stood at $18.1 billion for the quarter ended Sept 30.

For the quarter ended Sept. 30, Lumen posted revenue of $3.2

billion, down 11.5% from the same period a year earlier, while

its net loss widened to $148 million. Its fiber broadband

business, which accounts for 40% of its mass markets broadband

revenue, grew 16.6% from last year.

In September, Lumen launched a debt swap for near-term bonds

to extend some of its maturities. The exchange triggered a

downgrade in Lumen's credit rating from S&P Global Ratings.

In November, S&P assigned a CreditWatch Positive rating to Lumen

on the back of the company's recent AI contract wins, indicating

that its credit rating could be upgraded by a notch depending on

its fourth-quarter results.