- Lumen landed $5 billion in contracts to help hyperscalers and the like meet AI demands
- The operator’s no stranger to leasing dark fiber as well as offering wavelength services to large enterprises
- As Lumen looks to capitalize on AI demand, it also wants to simplify its enterprise product portfolio
Lumen has struck gold in the artificial intelligence (AI) market, revealing this week it’s scored $5 billion in contracts to connect data centers to its fiber network. The company’s in talks to secure another $7 billion in deals to help businesses up their capacity for AI.
Unsurprisingly, AI hype took center stage at Lumen’s second quarter earnings call, with CEO Kate Johnson stating the company’s been “anointed as the trusted network for AI by some of the most important technology companies on earth.”
“We see the market for Lumen’s private connectivity fabric as providing a major positive momentum shift for this company,” she said, mentioning Microsoft and “several other big technology firms” have tapped Lumen to build their AI backbone.
To ensure it’s well-equipped for the job, Lumen just inked a deal with Corning to reserve 10% of the vendor’s global fiber capacity for the next two years – making this Lumen’s largest fiber optic cable purchase yet.
The $5 billion in contracts “largely consist[s]” of hyperscalers ordering and purchasing 20-year dark fiber Indefeasible Rights of Use (IRU) agreements to connect to new training AI data centers, according to TD Cowen analysts.
The deals also give Lumen some upfront cash it can use to pay down debt and invest in “ongoing business transformation initiatives,” they said.
All told, these developments have been “great news” for Lumen, said AvidThink’s Roy Chua.
“Certainly with the recent buildout of data centers to support the anticipated AI workloads, and distribution of more data centers in search of power demands that fiber connectivity go along with that,” he said.
The state of enterprise connectivity
Lumen’s footprint in inter-data center connectivity is nothing to scoff at, as its intercity network includes routes to more than 50 cities across the country. In the U.S., Chua noted Lumen’s competing with operators like AT&T, Arelion, Verizon and Zayo.
Leasing dark fiber to large enterprises is already an area of expertise for Lumen, said Dell’Oro analyst Jimmy Yu.
“The company is investing in working towards creating a purpose-built network or service for the AI opportunity. The basis of which requires more fiber closer to data center locations,” Yu told Fierce.
Landing $5 billion in contracts “is a great proof point that their strategy has legs,” he said.
Lumen also continues to lead the U.S. wavelength services market, according to new data from Vertical Systems Group. Wavelength revenue in the U.S. will likely top $5 billion this year, said VSG Principal Rick Malone, “driven by strong customer demand for retail gigabit circuits spurred by AI implementations.”
Johnson predicted the AI market will undergo “three distinct phases.” First, the companies building and training AI models (think tech cos, cloud providers, social platforms) “recognize[d] that today’s internet simply won’t serve tomorrow’s AI economy.”
The next “tranche of demand” will come from enterprises using AI models, with Johnson noting financial services, healthcare and retailers are “leading the way” with that.
“Finally, in the third phase, we suspect breakout growth and demand for connectivity and digital on-demand network services will come when AI starts talking to AI in rings and exchanges,” Johnson said.
Cleaning house
Alongside its AI ambitions, Lumen wants to tighten up its enterprise product portfolio. It plans to move most of its services to a “unified network fabric” by the end of 2025.
Translation? The company’s aiming to “significantly reduce [its] product count from thousands of product codes to a target of around 300,” Johnson said. After that, it’ll tackle cost savings in IT.
“For example, we’d like to compress our 24 order management systems to a target number of one and reduce our 17 billing systems to, well, you guessed it, a target of one,” she added.
What else can we expect from Lumen? The company’s “been discussing more innovative solutions,” Chua noted, especially around network-as-a-service and application programming interface (API) enablement.
“And with Dave Ward joining earlier this year as CTO, I’d expect more software defined networking-type, on-demand services, which may appeal to the hyperscalers and AI crowds,” he concluded.
