Lumen doesn't think a recession will impact fiber business

Despite rising inflation rates and dropping stock prices, Maxine Moreau, president of Lumen Technologies’ Mass Markets segment, believes the company is well-positioned to take on an impending financial crisis.

“We feel strong[ly] that we can withstand any effects of a recession,” Moreau said at a Wells Fargo investor conference Monday. “We feel very well insulated from a customer demand standpoint. Customers need high-speed symmetrical broadband service…it’s a service most customers are not willing to let go of.”

Her comments were similar to those made by Altice USA CEO Dexter Goei at a MoffettNathanson conference last month – where Goei referred to broadband as “recession-proof.”

While Moreau thinks broadband demand will remain strong, she did mention Lumen’s “managing cost pressures relative to inflation,” particularly with equipment prices.

“We’ve built some of those cost increases into our plan on the labor front,” she said, adding Lumen is focused on maintaining employee engagement as well as an “acceptable” employee attrition rate. “It’s a hot job market, so we’re dealing with that as well as rising inflation just like everyone else is.”

Supply-chain wise, Moreau said Lumen has entered multi-year contracts with various suppliers, so that the company has enough equipment to handle its “near-term needs” for fiber construction.

Lumen’s Mass Market segment operates under two brands: the Quantum Fiber product and the legacy CenturyLink brand, which deals with Lumen’s non-fiber assets. Moreau said Lumen’s growth “will be driven from Quantum Fiber,” which aims to pass a total of 12 million locations over the coming years.

She reiterated past comments made by CEO Jeff Storey, who had said the company has ramped up the pace of new fiber builds – aiming to surpass 1 million passings per year.

Moreau pointed out there are “a lot of moving parts” to consider with that passings goal, like mobilizing Lumen’s workforce, managing construction permits as well as collaborating with suppliers to make sense of future supply-chain needs.

“As we complete this initial phase, you’re going to see our pace begin to accelerate and ramp up mainly in the second half of this year,” she said. “But we feel really good about our ability to enable a million or so locations this year,” adding that passings rate could very well go up after the year’s end.

Moreau also said Lumen is confident about building out fiber in dense urban clusters, especially once the company finalizes its $7.5 billion deal to sell its ILEC assets to Apollo Global Management – expected to happen in the second half of 2022.

Moreau went on to say Lumen’s “all digital, simplified customer experience” is resonating well with Quantum Fiber customers.

“We interact with customers in a very different way than we’ve gone to market before,” she said. “The pricing is simple. It’s subscription-based, all prepaid. We have local market teams deployed in each market. Those teams are accountable for driving not only the footprint expansion but driving customer growth.”

That digital customer experience also applies to Lumen’s enterprise customers. Moreau said Lumen about a year ago decided to align its small business segment (typically companies with fewer than 20 employees) with Mass Markets.

“Those customers’ buying behaviors are very similar to [those] of a consumer,” she said. “Highly digital, the services they need are high-speed broadband, reliable voice services. We felt like leveraging all the capabilities we had built in the consumer part of our business, leveraging that across small businesses would bear fruit over time. And we’re seeing that.”

Moreau noted Lumen is seeing opportunity within the small business space, as its market share is “relatively low” compared to its cable competitors. Within Lumen’s 16-state footprint, Comcast has about 50% overlapping coverage, she said, whereas Cox Communications has around 20% market overlap.