I wrote a few weeks ago that Lumen (CenturyLink) was looking to sell a large portion of its copper networks to Apollo Global Management. That rumor became real when the company announced a sale of copper assets in twenty states (the orange areas in the map below). Selling a regulated telco property is never an easy process, and the sale is not expected to close until the second half of 2022.

The sale covers the retail operations in the twenty states, which mostly means DSL customers. The sales announcement says that Apollo is getting 7 million passings but didn’t say how many active customers that is. The areas being sold include 200,000 fiber passings and about 59,000 fiber customers. The sale will cover “CenturyLink-branded assets” which includes “consumer and small businesses, . . . fiber and copper networks, tower site connectivity and central offices”. Lumen will retain its competitive CLEC business, which consists of a national fiber network and selling to business customers mostly in cities. For example, the CLEC business holds the lucrative GSA contract that sells phones and broadband to the federal government.

The sale price is $7.5 billion, which is reported to be 5.5 times adjusted EBITDA. That price and multiple seem high for buying a mostly copper network, and several analysts estimated the value at around $5 billion in recent weeks. The purchase also brings along $1.4 billion in debt, which means cash changing hands ought to be around $6.1 billion.

The Apollo Global Management team is led by three veterans who helped to build Verizon’s FiOS business, including Bob Mudge, Chris Creager, and Tom McGuire. This purchase is another example of telecom businesses being snatched up by giant equity firms. Apollo is on a buying spree and a week earlier announced the $200 million purchase of FirstDigital Telecom, a fiber-based carrier from Lindon, Utah; FirstDigital just recently acquired Veracity Networks. In just the last few months Apollo also recently purchased the Media Assets of Verizon for $5 billion, bought a share of the University of Phoenix for $1 billion, purchased one of the top industrial staffing firms EmployeeBridge, purchased the majority stake in bioenergy producer AS Graanul, and purchased Foundation Home Loans.

It’s going to be interesting to watch the Apollo team works its way through the regulatory approval process because the main goal of the management team is likely to bring fiber to the county seats and towns that come with this purchase. One report of the sale said that 70% of the customers being acquired are in towns and 30% in rural areas. It’s hard to think that the team will want to make any investment in rural copper properties – unless it somehow capitalizes on upcoming infrastructure grants. To gain regulatory approval for the sale, Apollo is going to have to promise regulators that it won’t walk away from rural obligation – a promise that will be hard to keep because CenturyLink stopped maintaining rural properties decades ago in many of these places.

One of the interesting sidenotes of the purchase for industry veterans is that the purchase includes Louisiana, meaning CenturyLink is divesting its original telco property. That will really cut the ties between Lumen and CenturyLink. The purchase likely is also divesting CenturyLink’s one foray into last-mile partnering through selling CenturyLink’s participation on the municipally-owned network in Springfield, MO.

It will be interesting to see if Apollo can do better than other past forays with buying copper networks. I can’t think of one of these mega-deals where buying copper networks has gone well. I think back on the purchases by Frontier, Fairpoint, Iowa Telephone, Windstream, Citizens, and others that never panned out – and those deals were for copper that was ‘t as ancient as is coming in this sale. Some of the rural customers in this sale have seen the name of the incumbent telco change several times – but they haven’t seen improvements in copper for decades.