Lumen is prepared for the next stages of AI

“The consumer side is a great asset,” said Stansbury, “but it’s an asset that is probably better suited in somebody’s hands who has a wireless offering. And obviously, with the activity that’s taking place in the market, it’s a very attractive asset right now.”

Lumen views its residential business as two segments: legacy copper and fiber. Stansbury reported that the copper segment generates EBITDA while the fiber segment consumes Capex. As to the best way to separate from and exit the consumer businesses, Stansbury reported it comes down to the valuation of the assets.

“If there’s valuation to separate that business in its entirety, and it allows us to de-lever, great. But there is, I think, an active debate around which assets really are the most valuable.”

Eyes on enterprise

Lumen’s move to distance itself from residential services reinforces the company’s belief that it is uniquely positioned to capitalize on opportunities in an AI economy.

“When you look at that competitive landscape,” said Stansbury, “there’s really no other competitor that is investing at the pace that we are to digitize the network and make it more easily consumable. The enterprise space has really been defined by decreasing price per byte and selling as a commodity for years: that’s not our focus. Our focus is on bringing value to CIOs to support an AI economy where there is a movement of workloads, massive workloads, quickly with low latency from one hyperscale cloud provider to another, with maybe some edge compute in the middle. Those are the kinds of services that companies are screaming for, and we’re the only ones investing in that space.”

Lumen’s confidence in the demand for its services is bolstered by several recent Private Connectivity Fabric (PCF) deals, and to help meet the demand, the company partnered with Corning, reserving 10% of the optical fiber producer’s global fiber capacity.

“We have access to their newest technology,” said Stansbury, “and because of the volumes we’re buying, we’ve secured an enormous amount of their production capacity in high-capacity cable that has multiple strands in it, and it has attributes that allow us to blow that fiber very efficiently.”

From an executive stance, Stansbury said the key priorities are seizing opportunities and increasing efficiency in the business.

“We see this tremendous opportunity that’s in front of us,” he said, “and getting new digital product to the market is obviously critical, but underneath that, because that is a multi-year progression, underneath that, it’s really about executing on the day-to-day, and today that involves a lot of the PCF deals which not only bring us some welcome and much-needed cash at this point in our transformation but it’s also really the beginnings of creating an ecosystem.”

Stansbury explained that the dark fiber customers are all colocated on Lumen’s network, which he said sets the company up to provide services digitally in the future. On the efficiency front, he reported that Lumen is focused on unlocking a faster path to digitizing the network.

“Today, the enterprise network is really four networks, and if you’re a customer of Lumen's, you know how much blue, red, orange, or green you buy—that’s how we define the networks—and by the end of next year, we’ll have that conversion to one network. It’s a lot easier to digitize and NAS-enable one network versus four, and in doing so, it allows us to unlock an enormous amount of efficiency.”

The focus on speed and efficiency is based on the idea that there is a sprint for AI and ML supremacy, and Lumen wants to be there to support the winners.

“From a hyperscale standpoint and AI training, which is what all of this supports, the most precious resource is time,” said Stansbury. “There’s a race to train these algorithms so that they can get to market and let large enterprises run their companies on these algorithms. And so, our ability to quickly deploy because the conduit is already in the ground is unparalleled.”

Capacity for inference

Stansbury explained that his thinking on capacity revolves around two variables: how much empty conduit capacity remains and the amount of fiber that can be put through any given conduit.

“The agreement with Corning gives us an advantage in terms of the amount of fiber we can pull through any one conduit,” he said, “so our ability to increase capacity, even in conduit that is being used today, is substantial. And so, we looked very carefully at our ability not just to support this training phase of AI, but also the next phase: inference, when large enterprise starts to consume more IP and waves, and we’ve got capacity to support that.”

Stansbury reported that Lumen has already seen dramatically increased rates of sales on IP and waves compared to a year ago.

“We actually readjusted our capital budget to support more build of those waves,” he said, “and large enterprise is consuming more and more data, and that will continue to grow.”

Stansbury said that going forward, investments and fiber buildouts will continue on pace with enterprise demands.

“We’ve put six million miles of fiber in the ground, and there’s another six million to come,” he said. “That’s outside of the PCF deals, which are, frankly, tens of millions of fiber miles. And that’s really to support where enterprise is going— it is shifting very rapidly from 100 gig to 400 gig waves, and ultimately, that fiber is scalable to 800 gig and 1.6 terabyte as the equipment that powers that fiber evolves over the next several years. So that’s where enterprise is going, that’s where the demands are, and our footprint is unparalleled in terms of the volume and quality of fiber that we’re putting into the ground to support that.”