Lumen should be Verizon's next target – analyst (original) (raw)

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Speculation is swirling that Verizon's $20 billion bid for Frontier Communications will spur more fiber-focused M&A among the nation's top mobile operators. At least one analyst has named the carrier he believes should be Verizon's next target: Lumen.

Analyst Jonathan Chaplin wrote in a research note issued Friday that an unnamed person pitched that idea to New Street Research about two weeks ago. Such an acquisition could help shore up Verizon's fiber base and convergence strategy. "It is speculative. But it makes a lot of sense," Chaplin wrote.

Lumen EVP and CTO Chris Stansbury suggested Thursday at a Bank of America conference that there is outside interest in Lumen.

"The reality is we're not in any kind of a formal process. But yes, there's interest. And I think that interest has definitely risen over the last year," Stansbury said. He noted that recent T-Mobile transactions centered on Lumos and Metronet represent the kind of M&A attention that's being given to fiber assets.

"I think Lumen is up for grabs. They are probably the next one to drop," Jeff Heynen, a VP at The Dell'Oro Group focused on broadband access and home networking, tells Light Reading.

The general thought being pressed by Chaplin is to see Verizon acquire Lumen (including its legacy residential business) and then spin out its own enterprise business along with the company's enterprise services that would come with a Lumen deal.

"This accomplishes two things for Verizon: first, Verizon gets ILEC assets in some of the most valuable markets in the country. Second, they get rid of the albatross that is enterprise and wholesale," Chaplin explained. He suggested that AT&T would also benefit from making a move for Lumen.

Keeping pace with AT&T

Chaplin suggested that an acquisition of Lumen would help Verizon step up its fiber and convergence game, putting it in a position to close the gap with AT&T and establish a wider lead on T-Mobile.

Verizon currently has about 18 million fiber locations and has been expanding it by about 500,000 per year, and stands to add 10 million or more from the Frontier deal. Speculating that Lumen could build fiber to 10 million to 12 million locations, Verizon could have in the range of 43 million to 47 million fiber locations by the end of the decade, Chaplin noted.

"Verizon would have fiber assets covering about 30% of their wireless footprint, which is still small when compared to converged assets in Europe and elsewhere, but it is a big improvement from where they are today," the analyst explained. "Verizon will have 47M wireless households, which is more than AT&T. They will be able to protect less of their mobile base with a converged offer than AT&T as a result."

He suggests that Verizon should not stop there, believing that there are other ILECs Verizon could target, including Brightspeed, which serves about 6.51 million locations. Chaplin added that Verizon should also consider striking a joint venture to expand fiber builds outside its legacy footprint—essentially mimicking the AT&T-BlackRock joint venture.

Chaplin also suggested that Verizon should "get serious" about the Broadband Equity, Access, and Deployment (BEAD) program. He estimates that there are 800,000 BEAD-eligible locations in the Frontier footprint and another 300,000 in the Verizon footprint.

Some analysts aren't wild about the proposed benefits of the Verizon-Frontier deal.

Verizon's move for Frontier is "a poor allocation of capital," and the telco will have to prove out the economics around converged and bundled customers, which "will take several years," KeyBanc Capital Markets analyst said in an emailed research report.

As Light Reading reported yesterday, MoffettNathanson analyst Craig Moffett considers Verizon's play for Frontier "a terrible idea," believing it won't provide nearly enough fiber footprint to truly bulk up its convergence strategy.

About the Author

Senior Editor, Light Reading

Jeff Baumgartner is a Senior Editor for Light Reading and is responsible for the day-to-day news coverage and analysis of the cable and video sectors. Follow him on X and LinkedIn.

Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.