AT&T eyes LUMN FTTH assets, deal could shape sector

On Wednesday, Bloomberg reported that AT&T (NYSE:T) is considering the acquisition of Lumen Technologies’ (NYSE:LUMN) fiber-to-the-home (FTTH) assets for over $5.5 billion. Although details are scarce, analysts at TD Cowen suggest that the purchase price could be approximately $1,350 per household passed (HHP), which seems a potentially favorable valuation for AT&T.

Analysts emphasize the strategic importance of the move, highlighting AT&T’s existing leadership in the wireless/wireline convergence space. If AT&T succeeds in acquiring these assets, it could strengthen its position and potentially outpace competitors Verizon (NYSE:VZ) and T-Mobile (NASDAQ:TMUS) in the market narrative. T-Mobile, in particular, might fall further behind, as it has been dismissive of the idea of convergence.

The race to build fiber "kingdoms" is seen as a defensive play in a mature wireless market, where the major carriers are striving to maintain their nationwide mobile market share. Both AT&T and Verizon have previously discussed the advantages of convergence, including customer retention and market share gains in converged regions.

For AT&T, the addition of approximately 4.2 million homes from Lumen could align with its goal of reaching over 45 million fiber homes, including its GigaPower joint venture, and further its leadership in convergence. This transaction, if it occurs, could fit within AT&T’s $10 billion mergers and acquisitions budget as outlined during its Analyst Day. The deal could also enable AT&T to leverage synergies in marketing, customer acquisition, and network efficiencies.

In contrast, T-Mobile’s strategy appears to focus on its rural and small/medium enterprise (SME) expansion, which has approximately two more years of greenfield opportunity. With annual revenue of $81.4 billion and trading near its 52-week high of $276.49, T-Mobile has demonstrated strong execution of its current strategy. Despite being behind in the convergence race, T-Mobile has $20 billion available for mergers and acquisitions that could allow it to catch up by acquiring smaller fiber operators. For deeper insights into T-Mobile’s financial health and growth prospects, investors can access comprehensive analysis through InvestingPro, which offers exclusive ProTips and detailed metrics for over 1,400 US stocks.

Lumen’s potential sale of its FTTH assets for more than $5.5 billion, while possibly disappointing given the tax implications, aligns with its strategy to concentrate on enterprise services and the GenAI fiber opportunity. The sale would also enable Lumen to reduce its capital expenditures by $1 billion annually and focus on deleveraging its balance sheet. The company may look to offload its remaining approximately 18 million DSL locations as a subsequent step.

In other recent news, T-Mobile US, Inc. has announced a $3.5 billion senior notes offering through its subsidiary, T-Mobile USA, Inc. The offering consists of three tranches with varying maturity dates and interest rates, and the proceeds are intended for general corporate purposes, including share buybacks and debt refinancing. This development follows T-Mobile’s recent filing of a registration statement with the SEC for a senior notes public offering, with Barclays (LON:BARC) Capital Inc., Deutsche Bank (ETR:DBKGn) Securities Inc., and Morgan Stanley (NYSE:MS) & Co. LLC among the joint book-running managers. Additionally, T-Mobile has updated its executive compensation agreements, impacting restricted stock unit awards for key executives and outlining compensation details for Michael J. Katz, the company’s President of Marketing, Strategy, and Products.

Furthermore, the U.S. Federal Communications Commission ( FCC (BME:FCC)) has granted Starlink, a subsidiary of SpaceX, permission to operate a direct-to-cell service with T-Mobile at increased power levels, despite opposition from AT&T and Verizon. This service aims to extend internet access to remote areas using specially configured satellites. The FCC’s approval allows T-Mobile and Starlink to enhance connectivity in areas unreachable by traditional cell towers, marking a significant step in their partnership announced in 2022. These recent developments highlight T-Mobile’s ongoing strategic initiatives in financial offerings, executive management, and innovative telecommunications services.

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