In a recent earnings call, Jeff Storey, the CEO of Lumen made it known that the company will be actively looking to sell non-core assets after sluggish revenue growth in the first quarter of this year. I speculate that the non-core assets include selling rural copper assets and customers. CEO Storey came to the business from Level 3 when his company merged with CenturyLink.
The business that Storey is trying to run is the remnants of US West, one of the seven Baby Bells created in 1983 from the divestiture of AT&T. The company was the incumbent telephone company in 14 western states ranging from Nebraska to Arizona to Washington. Until 1990 when the business consolidated under the US West name, it controlled three holding companies that retained their original telco names – Mountain Bell headquartered in Denver, Northwestern Bell headquartered in Omaha, and Pacific Northwest Bell headquartered in Seattle.
US West struggled from its inception compared to the other Baby Bells, mostly due to the huge geographic footprint of the business and the huge swaths of rural areas served by the business. In 1998 the company tried to increase shareholder value by spinning off MediaOne, which took the cable, cellular, and international business lines.
Qwest acquired US West in 2000 in a hostile takeover. Qwest was owned by Phillip Anschutz who had built a long-haul fiber business based upon using the rights-of-ways of the Southern Pacific Railroad. Qwest was formed in 1996 and benefitted from the CLEC boom of the late 1990s had a high-flying stock price. Regulators made the merged companies divest of the long-distance business as part of the merger.
The US West business was quickly renamed to the Qwest brand. The newly formed company quickly got into financial trouble due to the crash of the dot-com companies and large CLECs in 2000. Qwest had also ventured into a large partnership in Europe with the Dutch incumbent telco KPN that collapsed by 2002. Qwest got quickly into trouble with regulators for slamming – moving customers to its services without customer approval. The company was also fined $250 million by the Security and Exchange Commission for shady transactions with the telecom arm of Enron. Since Qwest had borrowed a huge amount of money to pay for US West, the business was quickly teetering on the edge of bankruptcy. In 2002 Qwest sold its directory business to help stave off bankruptcy.
Qwest limped along until it was acquired in 2010 by CenturyLink, a regulated incumbent telco from Monroe, Louisiana. CenturyLink had grown through acquisitions. For example, before buying Qwest, the company had acquired telephone lines from GTE, Verizon, Telephone USA, and smaller telcos like Madison River. CenturyLink’s final acquisition before buying Qwest was a merger with Embarq, the telco that had been built through acquisitions by Sprint.
CenturyLink acquired Qwest in a stock-for-stock cashless transaction in April 2011, which meant that CenturyLink inherited the still large remaining debt from Qwest. CenturyLink made some smart acquisitions that made it an early player in cloud computing, buying companies like Savvis, Ciber, AppFog, DataGardens, and Cognilytics.
CenturyLink acquired fast-growing Level 3 Communications in 2017 for $25 billion – although industry insiders say that Level 3 acquired CenturyLink. Within a few years, the former Level 3 executive team including Jeff Story took over the operations of the business. In September 2020, the company was rebranded as Lumen.
These various permutations of US West have struggled financially since divestiture from AT&T in 1983. The company was the slowest-growing Baby Bell after divestiture and was seriously crippled with debt after the hostile takeover by Qwest. I’ve heard the commonly spread rumors that the Level 3 executives are constantly frustrated by the inability to make changes inside the company due to the regulated nature of the core telco business.
Lumen now owns one of the biggest middle-mile fiber networks in the country, but the last mile copper is getting ancient. It wasn’t in the greatest shape at divestiture and the copper has aged 38 years since then. The question that industry watchers like me ask is if the old copper plant will be spun-off yet again to another company that will try to make it work – will the ghost of US West continue to sink everybody who touches it?