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From distressed trash can to AI darling – all in lower than a 12 months. Not way back, US regional telecommunications company Lumen Technologies was considered a corpse, plundered by Wall Street's most vicious vulture funds. Now it's the toast of the AI party. Its shares have gained greater than 700 percent because the spring. With a market capitalization of just about $10 billion, the debt load of nearly $20 billion suddenly doesn't look so impressive.
New technologies increasingly need old tubes, and plenty of previously underlying firms are trumpeting a revival. At Lumen, the rally is being driven by $8 billion value of contracts the corporate has signed with firms like Google, Amazon and Meta for so-called private connectivity fabrics. Lumen, formed last decade through the merger of Level 3 and CenturyLink, is an Internet backbone provider. AI hyperscalers and data centers purchase access to connect with their ultra-fast fiber network.
Another supposedly stagnant legacy telco could also profit from the renewed importance of old-school connectivity. It could help Frontier Communications secure a less expensive takeover price from Verizon than the $20 billion currently being offered. The former's shareholders consider that boring infrastructure suddenly becomes more necessary in a world where data loads are accelerating and Big Tech has enough money to pay toll collectors to make sure their demands are met.
Cash flow from deals with Big Tech is front-loaded, while accounting revenue recognition is more conservative. Interest expenses and capital expenditures remain huge at Lumen, while much of the business is maturing and declining – just consider copper wires.
A posh debt restructuring accomplished earlier this 12 months provided Lumen with more liquidity and a reprieve from outstanding debt. Still, with annual free money flow of lower than $2 billion and an organization otherwise seemingly in terminal decline, a bankruptcy filing seemed inevitable.
The Big Tech deals will help. Nevertheless, the operating figures remain frightening. But the rise in its equity capital could allow Lumen to sell latest shares to replenish its coffers within the hopes of securing more large data center deals in the longer term.
Not surprisingly, Lumen's management has bought heavily into the AI hype, saying their pipes are critical to unlocking the ability of an emerging, disruptive technology. Whether that's true or not, Lumen and its competitors are well-positioned to lift capital while the sun shines.
sujeet.indap@ft.com
