Lumen inks $7.5B deal to sell ILEC assets to Apollo

Lumen Technologies struck a $7.5 billion deal to sell its ILEC assets in 20 states to investment firm Apollo Global Management. The transaction is expected to close in the second half of 2022.

Apollo is acquiring Lumen’s CenturyLink footprint in the Midwest and southeastern U.S. (except Florida), including its local fiber and copper network assets, broadband and voice customers served by those holdings, connectivity to tower sites and central offices. All told, Lumen is handing over 200,000 fiber-enabled units and 7 million addressable locations.

During a call with investors, Lumen president and CEO Jeff Storey said “we knew that we were unlikely to prioritize investments in these markets ahead of our other opportunities in enterprise and Quantum Fiber.” He added “this transaction will allow the transferred assets to get the higher level of investment we know they can sustain.”

The operator plans to retain ILEC operations in 16 states in the western part of the country, spanning 2.4 million fiber-enabled units and 21 million addressable locations. It will also keep control of its non-local exchange fiber assets in the 20 states where it’s selling assets to Apollo, including its long-haul fiber and enterprise CLEC holdings, Storey said.

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“On the whole, our retained markets have significantly higher fiber penetration, population density, enterprise demand and overall growth opportunities than the transferred assets,” Storey said, noting 70% of the addressable locations in the 16 remaining markets are in urban and suburban areas.

Storey said it plans to accelerate the pace of investment in Quantum Fiber. While it is still developing a new build plan, he noted it expects to “build faster and with more scale” in the markets it prioritizes for investment. CFO Neel Dev added it is looking to accelerate capex spending in the back half of this year.

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The deal with Apollo comes on the heels of Lumen’s move last month to sell its Latin America business to infrastructure investment firm Stonepeak for $2.7 billion. Storey said it will remain open minded about its assets and “continue to look forward toward acquisitions, toward divestitures, whatever makes sense for us as we continue to evolve our business.”

Q2 results

Lumen posted net income of $506 million in Q2 2021, up year-on-year from $377 million. Revenue fell 5% to $4.9 billion. By segment, Business revenue fell 5% to $3.5 billion while Mass Market sales slid 5% to $1.4 billion.

Dev stated the operator added 31,000 Quantum Fiber customers in the quarter, raising its total to 746,000. He added fiber broadband revenue grew 30% year-on-year and now represents 17% of overall Mass Market broadband revenues, compared to 13% in the year-ago quarter.