Lumen Technologies Bets on Digital Networks as AI Inference Strains Connectivity

Key Points

• Lumen is shifting toward digital networking, with strategic revenue now representing more than half of total revenue and growing 14% in the latest quarter. Its Network-as-a-Service business is expanding at a reported 200% annual rate.
• The Alkira acquisition and Private Connectivity Fabric are designed to address rising demand for cloud-to-cloud and enterprise connectivity as AI inference makes networks a key bottleneck. Lumen plans to leverage existing conduit and fiber routes rather than build costly new infrastructure.
• Lumen maintained its 2026 EBITDA guidance of $3.1 billion to $3.3 billion, while targeting $700 million in annualized cost savings this year and $1 billion by 2027. Legacy operations will be managed primarily for cash as the company reduces spending on aging systems.

Lumen Technologies NYSE: LUMN is focusing its strategy on digitizing enterprise networking, expanding Network-as-a-Service offerings and managing its legacy operations for cash generation, President and CFO Chris Stansbury said at the Goldman Sachs Communacopia + Technology Conference.

Stansbury said more than half of Lumen’s revenue now comes from what the company classifies as strategic revenue, which includes connectivity products such as fiber waves, IP and security services. That portion of the business grew 14% in the most recent quarter, he said, while the company’s legacy revenue stream is intended to generate cash as Lumen shifts toward newer digital services.

Alkira acquisition supports cloud connectivity strategy

Stansbury said Lumen’s acquisition of Alkira, combined with its existing network footprint and direct cloud access capabilities, is intended to enable customers to move data “from anywhere to anywhere on demand” across networks and cloud platforms.

He described the offering as an “east-west capability” that can support data movement between cloud environments. As enterprises increase use of AI inference, Stansbury said network connectivity is becoming a constraint.

“As enterprise moves to inference, the network is the bottleneck,” Stansbury said. “It is not energy, it is not GPUs, it is the network.”

The company sees its digitally provisioned wavelength offerings as particularly relevant for neocloud providers and enterprises that need connectivity more quickly than traditional network deployments can provide. Lumen reported that revenue from on-demand wavelengths grew 11% in the prior quarter, while sales grew 35%.

Stansbury said customers can self-provision a Network-as-a-Service circuit rather than waiting for traditional field deployment processes. He added that large language model training has driven demand for Private Connectivity Fabric, or PCF, among hyperscale cloud companies, while inference activity is broadening demand toward neoclouds and enterprise customers.

PCF investments use existing conduit

On PCF, Stansbury emphasized that Lumen is not pursuing new routes requiring new conduit, which he said offer low single-digit returns on investment. Instead, the company is using existing conduit and routes, including infrastructure installed decades ago.

Lumen estimates it will have 58 million miles of fiber in the ground by 2030, according to Stansbury. He said the company can now pull more than 1,700 fiber strands through 2-inch PVC conduit that was originally designed to carry roughly a dozen strands.

PCF provides three benefits, Stansbury said:

• It monetizes previously dormant network assets at what he described as attractive margins and returns.
• It increases Lumen’s proximity to hyperscale cloud providers and supports direct cloud on-ramp access.
• It expands fiber capacity available for enterprise products, including RapidRoutes, metro rings and wavelength services.

Lumen has guided for roughly $3 billion of capital expenditures for the year, including approximately $1 billion for PCF and about $2 billion for the company’s ongoing business. Stansbury said PCF is not capital intensive because it is paid for before Lumen pays suppliers.

The company has said PCF’s cash contribution is roughly 30%, or approximately its EBITDA margin after capital expenditures. Stansbury added that about 90% of PCF contract cash is received during the first three years, while the remaining 10% is earned over the balance of the contract to operate the network.

Any additional PCF business beyond contracts already sold is not included in the company’s Investor Day algorithm or guidance, he said. Lumen would use incremental proceeds to continue reducing leverage.

Digital services and Network-as-a-Service adoption

Stansbury defined digital revenue as traditional connectivity services that customers can buy, provision and deploy without requiring a truck roll. Lumen has projected $800 million to $900 million in digital revenue by 2030.

He said Network-as-a-Service adoption metrics, including customer and port counts, are ahead of the company’s internal expectations, though some purchased ports have not yet been installed because customers must complete work at their own locations.

Once ports are active, Lumen expects to sell additional digital services at incremental margins that begin at 80% and approach 100%, according to Stansbury, because digital delivery has effectively no marginal cost.

Network-as-a-Service is growing at an annual rate of 200%, Stansbury said, compared with a basic connectivity market that he said is expanding at less than 1% annually. Financial services has been the fastest-adopting vertical, he added. A large multinational bank that initially bought about 650 Network-as-a-Service ports has since increased that total to 1,000 ports.

Stansbury said many of those endpoints do not sit directly on Lumen’s network, but their digital representations allow Lumen to sell additional services, including cloud access, data-center connectivity, backup and security capabilities delivered through ecosystem partners.

Guidance, legacy operations and cost savings

Lumen remains committed to its 2026 EBITDA guidance of $3.1 billion to $3.3 billion, Stansbury said. He noted that the company expects a seasonal EBITDA reduction of $90 million to $100 million from the second quarter to the third quarter, after adjusting for a $36 million California PCF deal delivered in the second quarter. Higher summer maintenance spending and energy costs contribute to that seasonal change, he said.

Over time, Lumen expects to place less emphasis on preserving legacy revenue and more on managing those operations for cash. The company has already stopped selling legacy voice products, Stansbury said, and is studying the potential to reduce capital spending on aging systems and mine copper from retired infrastructure.

Lumen estimates it may be spending $200 million to $300 million annually to maintain old services. The company is targeting $700 million in annualized cost savings this year and $1 billion by 2027, largely through network simplification, lower IT costs and reduced operational complexity.

“The number one focus of the entire organization is on driving digital growth,” Stansbury said, while the legacy portfolio will continue to be managed for cash.

About Lumen Technologies (NYSE:LUMN)

Lumen Technologies, Inc NYSE: LUMN is a communications and technology company that provides connectivity, networking and digital services to businesses, government organizations and other institutions. Its offerings include fiber-based internet access, wide-area networking, ethernet, software-defined networking, managed network services, cloud connectivity, cybersecurity and unified communications.

The company operates one of the largest fiber networks in the United States and also provides international connectivity through its global network infrastructure.

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