AT&T to Acquire Lumen's Fiber Business for $57.5 Billion, Expanding Coverage by 1 Million Customers

AT&T has announced a significant expansion in its fiber business, agreeing to acquire Lumen Technologies' consumer fiber business for 57.5 billion dollars in cash. This strategic move is expected to enhance AT&T's presence in major cities such as Denver and Las Vegas, providing faster broadband services to a broader customer base. The transaction, which is subject to regulatory approval, is anticipated to be completed in the first half of next year.

Analysts on Wall Street have responded positively to the deal, describing it as "positive" and "strategically aligned" for both AT&T and Lumen. For AT&T, the acquisition will significantly expand its fiber coverage, while for Lumen, it offers an opportunity to reduce debt and streamline its business operations. The deal will add approximately 1 million fiber customers to AT&T's portfolio, extending its coverage to 4 million fiber locations across 11 states in the United States. This expansion is expected to enhance AT&T's competitive position in the market.

From a financial perspective, the transaction will reduce Lumen's net debt to adjusted EBITDA ratio from 4.9 times to 3.9 times. This will decrease Lumen's capital expenditure in the fiber business by approximately 1 billion dollars, improving its annual cash flow and providing more opportunities for refinancing. Lumen will be able to focus more on its enterprise fiber business and enterprise customers, further strengthening its market position.

Morgan Stanley highlights that approximately 85% of the newly acquired coverage areas will compete with major players such as Comcast or Charter Communications. The firm believes that AT&T now has the opportunity to expand its fiber customer base in these new coverage areas, increasing the fiber penetration rate from the current 25% to 40%. This expansion is expected to enhance AT&T's mobile business market share in these new markets, driven by a healthy U.S. wireless communications industry and the rapid growth of its fiber business. Morgan Stanley maintains its "overweight" rating on AT&T, citing its strong growth prospects.

UBS also views the transaction positively, stating that it will solidify AT&T's position as the largest integrated fiber supplier in the United States. The company aims to cover 60 million households by 2030, a target that surpasses those of its competitors. UBS maintains its "buy" rating on AT&T, highlighting the strategic benefits of the acquisition for both companies involved.

Bank of America supports the transaction, stating that it aligns with AT&T's strategic focus on connectivity and expanding its fiber coverage. The firm notes that AT&T's existing business is achieving steady growth in wireless and consumer broadband, and this transaction is expected to further strengthen and extend this growth trend. AT&T has allocated sufficient financial flexibility for this transaction, ensuring that its capital return plans, including dividends and share repurchases, remain intact. The firm also maintains its "buy" rating on AT&T.

Oppenheimer analysts view the transaction as slightly positive for AT&T, supporting its integration strategy. Although the transaction size is relatively small, Oppenheimer notes that it further solidifies AT&T's position as the largest and fastest-growing fiber builder, providing upward potential for its wireless integration strategy. They maintain their "outperform" rating on AT&T, reflecting their confidence in the company's strategic direction and growth prospects.