Lumen looks for lifeline and sees NaaS

by Martha DeGrasse 4/10/2024

Lumen Technologies has seen its share price erode drastically over the last two years, as it struggles with a crushing debt load and declining revenues. During 2023, sales were down for every segment of Lumen’s business, and full year revenue was $14.5 billion, off more than 16% from 2022. 

 

The Louisiana company’s comeback plan involves assisting its enterprise customers with their digital transformations, starting with Network-as-a-Service (NaaS). Lumen’s leadership is betting that as companies move storage and compute to the cloud, they will want to bring that same pay-as-you-go service model to their network infrastructure. 

 

During Lumen’s Q4 2023 earnings call, CEO Kate Johnson told investors the company will start reporting on its Lumen Digital businesses separately this year, and the first element of that business she highlighted was NaaS. Just a few hours before the earnings call, Lumen announced that Dave Ward, former CEO of NaaS specialist PacketFabric, has joined Lumen as CTO. 

 

To underscore its enthusiasm for NaaS, Lumen recently sponsored a survey on the technology conducted by Boston Consulting Group (BCG). The researchers surveyed 900 IT professionals and reported that 90% of midsize and large enterprises plan to migrate to a NaaS within the next 3 years. BCG said the top priorities named by survey respondents were simplified network management, easy purchasing and provisioning, secure, reliable connectivity and financial flexibility.

 

Wall Street is paying close attention to Lumen’s NaaS strategy. The analysts at TD Cowen described the middle market as “ripe for NaaS solutions” in their report on Lumen’s Q4 2023 earnings, and they noted that there are “many mid-market customers in LUMN lit buildings.” 

 

Some industry observers are also optimistic about NaaS for midsize businesses, and even for larger enterprises. 

 

“SMBs are the typical NaaS buyers, particularly those with little to no WAN investments as part of its existing corporate strategy,” said AWS veteran Anthony McCray, now a consulting partner at Gemini Prime. “Over the last decade larger corporations have become attracted to NaaS models to avoid capital investments expenses,” he added.  “Corporations can reduce staff resource expenses associated with the skill and training required, NaaS can be viewed as another utility expense.”

 

“In a NaaS business model the corporation’s network is managed by the service provider through a portal,” McCray explained. “A new location can be added to said corporation’s WAN by interfacing to a NaaS provider’s nearest point-of-presence (PoP) via lease line to an edge data center or via the internet.”

 

McCray said Lumen’s 280 on-network carrier neutral data centers position it well. “Lumen is in a great position to prosper as data usage is not slowing, nor is data center expansion demand from the hyperscalers, enterprise verticals, SIs, manufacturing, finance, industrial, automotive, content delivery, gaming, transportation, utility, healthcare, agriculture, broadcast, and other Fortune 500 corporations whose payloads reside on Lumen’s global fabric,” he said. 

 

For Lumen, the most important question may be how quickly the company can monetize this demand in order to reverse the losses driven by its sizable interest payments.