Right.
You've experienced since you've taken the helm.
Sure. Well, you know, I'll really start with, there haven't really been many surprises. When you go through a selection process like the one I went through with the board, you learn a lot about the company throughout. The people are great, the assets are great. We have a huge opportunity, but there's, you know, a challenging road ahead, and we've got a lot of work to do. Why I took the job, all the reasons I just talked about, right? The people are great, the assets are great, I kind of thrive in the challenging world, driving digital transformation and leading people through change. That's what I've been doing for a couple decades, I just love it. I'm excited to be here.
Great. Well, and thank you for being here to share some of your initial perspectives on the go-forward plan for Lumen. We're gonna get our first live survey out there for our audience, and we'll come back to it in a few minutes.
Okay.
The question that we're asking our audience is, what is the best way Lumen can create value over a 3-year horizon? You know, we came up with, like, 6 choices. I don't know if it's the full complement of options that are out there, but, you know, 1 would be investing in product marketing for the business segment. 2 would be accelerating the fiber investments for the mass market footprint, separating the assets between ILEC and business, or fiber infrastructure from within business, pursuing partnerships or mergers to expand product and distribution, reducing net debt leverage more quickly and aggressively reducing expenses. We'll come back to that as the audience has time to decide what they think the best way is.
That's great. We're crowdsourcing my strategic plan. Thank you.
Happy to help. What are the big strategic decisions that need to be made as you've entered into this new year and you're looking to reshape Lumen with the management team?
Yeah, it really starts with clarity of our plan. You know, who are we? Who do we serve? What are our proprietary gifts and, you know, that yield a competitive advantage in the markets that we serve? We're calling that our North Star. You know, a big part of that is really the economic model. We've obviously got some businesses that are in decline with, you know, commoditization happening and some legacy technologies. Creating a path forward to get to growth is job 1. How do you do that? You know, where are the investments that you need to make? That economic model is really informing a lot of that work. If you put the North Star together with the economic model, you get a short list of core priorities pretty quickly.
I'm pleased with where we are with that stream of work. We have great drafts across the board, so, we're making progress already.
When I think of Lumen, I think of all of the assets that this company has put together over time, particularly on the fiber infrastructure side. How can Lumen uniquely solve connectivity solutions for customers?
I mean, I think we need to go back and first talk about those customers, right? One of our core priorities for the company is going to be to become customer obsessed. That's a word that's often used in technology. I don't know that it's necessarily used in telecom as much. You know, for... if you go back to our roots, that's not necessarily what you needed to do. You had an offering you brought to market and collect the rents off of those assets. In technology, you shape things to solve problems. Obsessing about customers' needs is the way that you drive innovation, that drives differentiation, that serves those needs. That will be our number one core priority. It's where we're going to focus everything.
That will then inform our different pools of capabilities across core network services and connectivity. continuing to make sure that we have the most unique routes, continuing to make sure we have state-of-the-art technology, you know, lots of conduit out there. These are proprietary gifts that we have that we're really excited about. The trick is, how do we drive more value from those assets? That's the technology that we put on top. security is a huge opportunity for us. edge cloud, huge opportunity for us.
The other thing I've thought about, you know, with Lumen's history is internally there seems to have been a very significant focus on cost cutting. How are you thinking about pivoting the company from this historical focus on the cost cuts and addressing some of the financial headwinds?
Yeah.
Become more growth oriented?
Yeah. I think, you know, I think it starts with our mission, right? Our mission is to digitally connect people, data, and applications quickly, securely, and effortlessly. The first part, connecting people, data, and apps, that's kind of our core DNA, right? Quickly, securely, and effortlessly, that's really what our customers are demanding of us to solve some of those core problems of delivering cost-effective operations, securing their data and applications, innovating themselves, and helping their employees thrive, right? If we think about our mission and how do we do those three things quickly, securely, and effortlessly to solve those core problems, you very quickly line up your investment engines behind what you need to do. Here's the challenge for us. We're the product of many, many mergers, right?
We've been looking inward for a long time, about, you know, sort of how do we drive synergy? How do we take cost out? It was all about operational efficiency. When you look inward for a long, long time, you forget how to look outward. That is a massive mindset shift that we're gonna be working on as a company. We wanna start thinking outside in. I've mentioned, you know, we wanna obsess about our customers and their problems because that's how we drive innovation, which will be how we get to growth.
Does anyone do this well in the category right now?
You know what? I'm gonna sort of just stick to my knitting and say that we're gonna be the best.
Great. From an organizational perspective, there was an announcement this morning on a new hire.
Yeah.
You know, what's happening in terms of talent and shifting the culture internally?
Yeah. So think about turning the company to becoming customer-obsessed to, you know, creating the digital enterprise so that, you know, doing business with us is effortless. This is a big transformation journey. We need leaders who deeply understand how to drive change. We also need leaders who deeply understand our core network services and all of the markets that we serve. It's a combination of some of the people who are here and have been for a long time and are super excited about the future, but it's also about bringing in new talent. Look, I think about my job as, you know, number 1, super clear strategic plan. Number 2, right people in the right roles. Number 3, capital allocation. I'm really excited with the bench of tech talent.
That's been calling to say, "Hey, we'd love to help you with this transformation. Looks like a great opportunity." Today we announced that Ashley Haynes-Gaspar is going to be our Executive Vice President of Customer Success, Wholesale and International. I've worked with Ashley at GE and Microsoft. She's a change leader like I am and knows how to deliver impactful results and is one of the most customer-obsessed people that I know. I'm excited. It's a great addition to the team, and I think you'll see over the next couple of weeks and months we're going to make several more announcements just like that.
Are you ready for the results of the first survey?
Bring it.
24% invest in product and marketing for the business segment. 16% accelerating fiber investments for mass market. Another 16% for separating the assets in some way, and 44% reducing net debt leverage more quickly. 0 for the partnerships and 0 for aggressively reducing expenses. You know, as you're thinking of the plan and the mission, are you thinking about some or multiple options here?
I mean, I'll take you through my first draft of priorities, and maybe we'll sort of, you know, bump it up against that list and see where we, where we land. You game?
Great.
All right. The first thing is develop customer obsession. I've talked a lot about that. That's building a muscle that will serve us well for growth. Once we figure out what those customer challenges are that we can grow into, I think the next thing is to innovate and invest for growth. Building that innovation engine, we have a couple of, you know, programs in the hopper that are gonna help us with sort of agile development around how to innovate quickly so that we can make sure that we're on the right path to putting product out there. Investing for growth, these are parts of the company that have been starving for a long time. Sales and marketing, when you're operational efficiency focused, you tend not to spend nearly enough on sales and marketing.
If you think about some of the technical capabilities being introduced into these markets, we really have got to put some dollars behind that. The next thing is building a reliable execution engine. I want the say-do ratio for this company to be at least 1 to 1. What that means is doing less things, but doing fewer things so much better than we've ever done before. That's everything from product invention to launch all the way through the life cycle to selling and supporting customers. You'll see us really fine-tuning our execution engine there. We need to radically simplify the company. That's not only about stopping certain things and doing less and getting better at fewer things, but it's also about, you know, kind of shutting things down 'cause they're sprawl.
Again, operational efficiency, every dollar looks good, so you kind of go out, you know, after a lot of different things, and you end up not getting them to scale, and they consume precious resources. I want all the resources aligned behind the programs and projects that will help us digitally connect people, data, and applications quickly, securely and effortlessly. Then finally, we're gonna make sure that we invest in our culture, transforming our mindset from inside thinking to outside thinking.
Is part of... When you talk about the simplicity, is part of the issue here that from a systems perspective, from a function perspective, that Lumen may still be a company of companies?
Yeah.
That you need to bring that together?
That's a huge factor in this for sure. It's simplifying our IT real estate and preparing it for modernization and driving the digital enterprise, reducing the number of applications that we support and use, which will, by the way, be a big part of our operational efficiency journey. We're gonna continue to optimize for cost, but we're also gonna optimize for growth, and we're gonna do that together.
When you think about the foundation of what Lumen is and what attracted you to the company, are there unique, differentiated or underappreciated assets that investors should be mindful of?
Definitely. Our core network, you know, the crown jewel, it's state-of-the-art, and it has unique routes and lots of conduit and, you know, we have invested billions over decades in that. The trick is getting the most amount of value out of that as possible, which is, I think, using technology to deliver solutions that solve those customer problems that I talked about. I think two parts of our portfolio where we have tremendous gains in edge cloud and security. We, you know, we help nations protect against bad actors and, you know, that's relevant at the enterprise level and at the consumer level. You'll see us leaning into commercializing those capabilities more and more. Black Lotus Labs is our, you know, threat detection and prevention, research lab.
It's world-class in terms of thought leadership and also in terms of practical solutions to help secure your data and applications. I think it's like the best-kept secret in the world. I'd like to tell the world about it and then to actually commercialize it. You'll see me sort of coming back to those two areas a lot because they're underappreciated in the market.
as you're thinking about this product menu, and you're thinking about offering customers a broader array of security options and edge options, how do you think about the need to own these products versus partnering-? Almost creating more of a marketplace where you could just deliver a broad array of customized solutions?
Yeah. You know, back to your little survey there, I think one of the places where we differ is I'm a firm believer in a large partner ecosystem. We are going to invest there. Let me tell you why. Partners are great for 2 things. Number 1, helping you build out the complete portfolio, 'cause there's no technology company that actually has it all. In fact, that's not a thing. There's not a single customer that wants 1 vendor because that's too much risk. Building great partnerships that are deeply strategic, where your technology is better together, that's a story of scale. To grow, that's what we need to do.
We'll be looking for pieces of technology that augment our portfolio to solve those customer problems that I keep coming back to, which by the way, huge opportunity in terms of solving customer problems today. They have all the same ones they used to have. On top of that, the hybrid workforce, remote and in-person, is changing the game. It's more complex and it's lots of change. That's an opportunity for a company like ours. Reaching out into lots of different partnerships, whether it's with, you know, the UCC providers like Microsoft, Zoom and Cisco, whether we're talking about SASE, you know, with VMware and Fortinet, whoever it is or the hyperscalers, they'll be important to our portfolio of capabilities discussion. There's another side to this, which is feet on the street.
Having a cadre of partners that, you know, channel partners for sure, but also, ones that bring a value story and help service partners that I could never have enough field-facing employees to cover those parts of the market. Two things, partner for growth in terms of go-to-market and partner for growth in terms of intellectual property. We'll be looking at the combo platter, which is all about our story of growth.
Right as you were arriving, Lumen cut the dividend. As you're thinking about your priority stack, should investors expect a significant change in capital allocation and investment levels to realize the opportunities that you're outlining?
I was a integral part of eliminating the dividend. As I looked at this opportunity to lead this great company, and to get to a place of growth, I knew that we couldn't do that. We would simply not have enough money to fund ourselves in the way that we need to in order to grow and compete in today's market. I'm really comfortable with where we landed on that, now we have the capital to be able to invest for growth, and you're gonna see us do that. We also have other capital allocation priorities that we need to take care of, and we'll be balancing them, you know, through... Again, one of these, I think it was C on your, on your list is in terms of staying net leverage neutral, right?
Long term, we'd like to bring our debt down, but right now we wanna keep it under 4x. Supporting our stock with buyback when we see valuation disparities. Balancing between the two of those, but growth is job one.
You mentioned buyback, so the question we're gonna get, I think, from investors. Is as you think about that, is that something people should think about, you know, near to medium term, or should they think about it longer term once you make these investments and start turning the company and getting back to the growth objectives?
We have a two-year, one-and-a-half billion dollar buyback program approved by our board. We're gonna be super thoughtful about how we do that. Again, look for the disparities and bump it up against our other allocation priorities. It's an evergreen process.
Let's throw our second survey question.
Do it.
Out to our audience.
Let's do it.
When can Lumen begin to profitably grow business and wholesale revenue? We're gonna give a few choices: 2023, 2024, 25 or beyond, or no visibility on when Lumen can return the segments back to growth. As that's populating in-
As it's cooking.
Yep.
Let it cook.
As it's brewing. We're getting responses. Maybe we'll turn to the macro. I mean, Lumen touches so many parts of the economy.
Both for consumer and business customers. Are you seeing any changes in customer behavior with respect to pipeline, decision-making for sales? Just in terms of the behavior of those customers.
Our pipeline's been pretty stable throughout the year. We're happy about that. It looks good. When you talk about approval processes and in this, in this economy, it's super challenging. You're always gonna have enterprises making sure they have the right approval processes in place. Think about it as layers of administration on top of any spends that they do. What's the one thing they're looking for? They're looking to make sure that whatever the executive is going to buy, whatever the division is going to buy, is gonna solve those existential priorities or problems that I keep talking about. Reliable and core operations and securing your data and applications, that's existential for any CEO, including me.
Our job, number 1, is to make sure that we have the business case and the story of how we help them deliver those business outcomes or solve those challenges every single time we pitch. When you're operational efficiency-focused and you're looking in, and you come from a history of being a utility, many decades ago, that's not necessarily a forte. We'll be building that muscle and addressing that head-on, that our technology can actually deliver great outcomes for companies in any market, especially a market that's down because, we, you know, technology can often help solve those problems and take costs out.
As you think about that, you know, there's the possibility of a recession this year. There's also a substantial change in digital transformation for companies and accommodating a hybrid workplace that developed during the pandemic and just hasn't existed really prior to that. Do you think even if the U.S. goes into recession, is there more opportunity because of the digital transformation and the migration to hybrid work and the security solutions and cloud solutions and the edge that's needed from all of that?
Yeah.
Do investors still need to be sensitive that recessions are net risk in the business segment particularly?
I think it's from where you come from. I come from technology, right? The technology world, technology is purchased during down cycles to help strengthen companies coming out of those cycles. Those are our opportunities with this company, just like any other one. We'll be very thoughtful about how we go after that. I think when you think about the hybrid workforce, people wanting to work from home but also needing to come in, that represents change. We love change. Change is complex in this world with these giant enterprises, and they need help. They need the high touch. They need us to help them think through how to deliver those business outcomes, and that's what we do.
You know, while I'm cautious because pressure is pressure, and we've got lots of it, and we've got a lot of work to do, this is something that we can, you know, flex our muscles and bring some of these great leaders in that I talked about that know how to do this and can help guide us.
Are you seeing anything on the mass market side? We're talking more about business, just in terms of behavior, customer behavior. You've got your Quantum product in the market. You've got some legacy products. What do you see out of that segment from an economic perspective?
Well, I mean, you wanna talk about inflation?
Please.
You know, inflation, basically, we announced on our last call that it would be at about a $100 million hit to EBITDA in 2022, mostly in the back half of the year. That's from an enterprise perspective. There's gonna continue to be cost pressure going into 2023. We'll use our operational efficiency initiatives to offset that pressure, but it's there and it's real. So far it looks like it could potentially continue. I think from a mass markets perspective, what we're seeing is that while it's a little bit of an increase to our target cost per enablement, it's not materially affecting the notion of the life cycle value for customers, which is the good news out of that. Our product is extremely strong. I love our NPS scores.
I actually had to triple-click, not double, not single, but triple, quadruple-click to look into them because they're so good and it's exciting, and I think we can learn a lot from how we're serving customers digitally in that business. More to follow there.
Where you are offering the strategic fiber product, seeing good performance. G ood results, good buy-up.
Absolutely.
Ready for the results of.
Yeah, yeah.
-survey?
What do they say? Remind me of the question?
The question is, when can Lumen begin to profitably grow business and wholesale revenue? 3%, 2023. 17%, 2024. 47%, 2025 and beyond. 33%, no visibility. Of course, we'd welcome you to weigh into your selection for the survey.
I thank you for your input.
When you think about, you know, the business and wholesale side, maybe to think a little bit more about the revenue opportunities, can you help unpack, you know, how you view competitive positioning? We're talking about a little bit earlier, but what are the most compelling opportunities to profitably improve your market share?
Yeah. Think about. I keep going back to this mission statement because I'm trying to help clarify who we are. We digitally connect people, data, and applications quickly, securely and effortlessly. Why is that important? Because applications power the global economy, and data is the currency of those applications, right? We are incredibly relevant in today's economy for the growth story of the macroeconomic, you know, environment for any enterprise. We're deeply relevant. We've got a lot of change that's being introduced, as I said. Where do we have muscle? We were incredibly thoughtful and very strategic when we decided to go into Edge. I think the world once thought, we're gonna be all public cloud all the time.
Then they looked at the reality of, you know, sort of retailers, the reality of manufacturers, healthcare companies, et cetera. Edge is a big part of how you need to connect people, data, and applications. The proximity of our edge capabilities to most businesses is extraordinary and is unparalleled. So we're excited about that. You're gonna see us building and partnering to bring technology to the edge that is gonna be very differentiating, and we're gonna be very clear on how we solve those unique problems of customers at the edge. That's one place where I have a lot of confidence that we can flex a muscle there.
The other part is where I talked about security, where we're doing some really special things, to protect our network and, to help the government protect the country. All of that is translatable to both protecting individuals at the consumer level as well as enterprises. Super unique gifts, undervalued and, you know, we're gonna be leaning into them heavily.
Just to unpack the edge a little bit more, 'cause the word edge is something that's used by a variety of companies in the ecosystem.
Sure.
When you're thinking about delivering edge services, can you just give us a brief overview of what that might look like? In terms of a sales opportunity, you know, what can Lumen do differently to invest in the sales and the go-to-market to take advantage of this opportunity?
Yeah, sure. I think just the way to summarize edge is latency slaying power, period. You know, if you're putting cream filling in a cookie and, you know, you need to adjust the line, you cannot wait for that data to go up to the public cloud and come back. You have to use either on-prem or edge in order to provide the latency slaying power to get the cream filling in the right spot. Big cookie girl, by the way. It's actually a manufacturing story. That's my point, is that as we become customer obsessed, we will continue to deeply understand the problems that manufacturer, retailers, healthcare companies, et cetera, are trying to solve.
We know for a fact that our edge is in the place where it can slay latency for those types of use cases and business outcomes that those customers are seeking.
Because you have deep fiber, because you could put software solutions on top of that.
We've got unique routes, because we did the calculus a long time ago to get to the right spot all across North America, and we're within, you know, less than 5 milliseconds of 97% of businesses, and nobody can make that claim. We're excited.
From a go-to-market perspective, how much of this is a direct selling opportunity versus using channel partners and indirect and solutions providers? To help get your fiber and your connectivity and your solutions into the hands of these customers?
It's a good question. You know, when you're first coming into a job, you sort of look left to right about what do we do and what do we do well and what do we need to work on? I was surprised at how little we appreciate the partner ecosystem. The partner ecosystem, as I said before, I'll never be able to hire enough sales and marketing people and feet on the street to be able to cover the markets the way they need to be covered. We have points of accountability at the commercial enterprise leaders serving, you know, public sector, and now for the first time ever, a leader running the team to serve SMB and mid-market.
The reason why that's important is because in the old days, way back in 2022, basically mid-market was embedded in our sales teams. If you are a salesperson trying to make your quota for the year, you're naturally gonna go after the bigger deals to get there as quickly as humanly possible so you can get to your accelerators. The mid-market motion is completely different than the enterprise motion. It got starved a little bit in the process. We see a huge opportunity there to invest and go after that segment with the right leadership. It's gonna 100% depend on our ability to build and nurture a partner ecosystem to help us cover those customers. When you talk about large enterprise, commercial, public sector, they want high touch, they want reputation, which we have.
They want deeply technical capabilities and managed services, and they want state-of-the-art network. We have all of that, so we will maintain the face-to-face for those segments. The place where we need to scale and go quickly, they're looking for simpler offerings, they're looking for no touch, they're looking for digital, you know, service across the entire customer lifecycle. We'll be using partners heavily in those scenarios.
Maybe shifting back to the mass markets and Quantum Fiber. Big decision, last year to, or actually over the last couple of years, to accelerate fiber upgrades inside of the footprint. I think in, you know, the fourth quarter, there was some discussion about maybe a pause in revisiting some of these, mass market strategies in terms of the timing of fiber. Can you walk us through sort of what's happening in terms of the quantum builds and, you know, what the pause is solving for?
Sure. The pause is really about figuring out how we can drive maximum shareholder value, period. We were very focused on counting building enablements. That was sort of how we decided. That was our success metric. As many as possible, more is always better. The reality is, quantity is not always better than quality. You know, delivering quality enablements is a better story around driving profitable revenue so that every dollar coming in the door, you know, greatly exceeds our cost of capital. Placing the emphasis there on quality is a different approach. That's, that was the sort of pause or thoughtfulness that we're applying to this. The numbers of pure enablements decrease when you do that.
Two things that we're doing to ensure that we're speeding up because we know that speed is important as well. Number 1, I streamlined, maybe in I think it was week 2, the organization under 1 leader. Maxine Moreau is President of Mass Markets at Lumen, and she's got full accountability from the P&L left to right, top to bottom. What that meant is I took the operations organization out of a unified enterprise and consumer group, and I put it under her. Takes away any competing priorities for deployments. It takes away any organizational friction that might be there, and it gives us a streamlined org that's fully accountable and can go after this business in the way that they should with the speed that they should.
The other thing is we're spending time building a factory approach to this. Everything we do, we gotta do at scale, and we've gotta be mindful from, you know, counting the number of buildings that meet the criteria of quality all the way through to the deployments and making sure that the way that we buy, you know, is getting the best rates, but also the fastest deployments, and then all the way through sales and marketing and making sure we're hitting our penetration rates and doing so with the highest NPS scores in the marketplace.
Seems like over the last year or so, there's a little bit of a surge in terms of the interest of different players in fiber infrastructure, whether it's upgrading or overbuilding. part of this is under the bucket of whether we need or within the bucket of whether we need converged services for households of, you know, fixed and mobile broadband. What do you think is, you know, creating this interest for overbuilds and for, you know, potentially more fiber? you know, is there a concern that some of these overbuilds can hit your markets and create a less favorable competitive landscape?
Yeah. Let's talk about the interest first. The interest is there 'cause it's a good business, albeit capital intensive. That's why you're seeing a lot of joint ventures. You know, that said, we believe that there is an advantage to being the incumbent in these markets. When you're an incumbent and you have an existing fiber network, you've got technical capabilities, you've got facilities, you've got employees that can help you get up and running really quickly. We're leaning into that, you know, advantage. That said, going fast and being first mover, there's always an advantage to that. We wanna do that more often than we have been, and that's why I talked about streamlining the organization and building that factory approach.
You'll see us taking our incumbent advantage and putting it together with first mover, and good things are gonna happen.
Is outside capital an opportunity for your fiber initiatives? Or given that you think it's a good business model, would you rather retain 100% of those economics?
We'll look at every opportunity to deliver maximum shareholder value, and we'll do that perennially. That is the job.
How do you look at wireless as an important tool in the toolbox, whether it's for the enterprise business or for the mass market business?
I think if you think about fixed wireless, there are opportunities in some of these really complex enterprise deployments that I talked about, manufacturing floors, et cetera, et cetera, where there's a bit of a better together story. But if you're, if you're talking about, you know, fixed wireless opportunities for sort of down market, we're seeing a little bit of that in the rural space. But mostly for copper customers that are choosing speeds of 20 megabits per second or less. Their standards around, you know, symmetric upload and download and, you know, the speeds and the reliability is just fundamentally different.
Our Quantum product, we are maniacally focused on those metro areas where the standards are super high, our product is great, and, you know, we can get the return for shareholders.
Do you have a view on mobile, whether mobile would be accretive to, even though it might be a resale, just accretive to the market share opportunities, whether it's in the enterprise or in consumer to get a better share of what you make money from?
I think that's week nine. I'll look at that at week nine.
Final question. As we look into 2023, now that we're here, what are the near term opportunities that you see to drive towards Lumen's goal of achieving this profitable revenue growth that we were talking about earlier?
I mean, Look, I was brought in from the outside. I'm a change leader. We're in a reset mode. We need to do lots of basic things to position ourselves to take advantage of the opportunity that's before us. We will be doing all of those things with great speed. You will see us, as I said before, we're gonna do fewer things, and we're gonna do them really, really well. Positioning ourselves, from a mindset perspective around customer obsession and putting customers at the heart of everything we do, simplifying the company, driving the digital enterprise with automation and workflow, using data and AI to get great at maintaining the network, and driving efficiency there, you know, and innovating and investing for growth, that's this year.
We're standing up all of those programs so that we can execute reliably and deliver the return that we know we can and should to our shareholders. That's what 23 looks like. I'm excited. We got the team is coming together really, really well. I'm looking forward to sharing more of this story with you in the coming months.
Well, Kate, thank you so much for sharing your time with us, and we look forward to hearing more in the future too. Thank you.
Thank you.
Thanks.
Great.