Lumen Technologies is in the midst of a dramatic transformation, shifting from a legacy telecom provider to a digital-first solutions company. While much of the attention has focused on their debt restructuring and fiber expansion, a subtle shift in their language around the wholesale business hints at a far bolder strategy. Could Lumen be quietly betting on the demise of the traditional wholesale telecom model?

During Lumen's recent Q1 2024 earnings call, a shift in tone regarding wholesale business was palpable. While acknowledging the ongoing declines in legacy wholesale products like TDM and voice, CFO Chris Stansbury characterized the traditional interplay between carriers as 'leveraging pricing and rate changes to drive results instead of delivering incremental value to customers.' He went further, calling these actions 'often to the detriment of the industry's customers and...generally unhealthy for the industry.'

This represents a significant departure from previous calls where wholesale was discussed primarily in terms of managing for cash flow. The pointed criticism of the current model suggests a more fundamental shift in thinking. Lumen seems to be implying that the price-focused, legacy wholesale market is unsustainable and destined for disruption.

This hypothesis aligns with Lumen's broader strategy of 'cloudifying telecom,' tailoring their offerings to a digital-first world. Traditional wholesale arrangements, focused on reselling legacy services, become irrelevant in this landscape. Lumen's focus on NaaS, ExaSwitch, and AI-powered security directly challenge the core assumptions of the existing wholesale model.

Here's where the hypothesis becomes interesting: Lumen's actions suggest they are not merely adapting to a changing wholesale landscape, but actively contributing to its demise. By aggressively pursuing digital solutions and criticizing the current model, Lumen could be signaling to both customers and competitors that a new era is dawning.

Let's look at the numbers:

Wholesale Revenue Decline: Wholesale revenue declined 11.3% year-over-year in Q1 2024, with the harvest portion of the portfolio, comprised of legacy services, contracting by 17.2%. This aligns with the broader trend of legacy service erosion. (Source: Q1 2024 Earnings Call Transcript)

Growth in Digital Solutions: Lumen reported strong sales in Q1 for its North American enterprise grow product portfolio, which includes NaaS and ExaSwitch. This growth engine directly competes with the traditional wholesale model by offering customers greater control, flexibility, and digital integration. (Source: Q1 2024 Earnings Call Transcript)

Shifting Resources: While not explicitly stated, it is reasonable to assume that Lumen is reallocating resources away from its legacy wholesale business and towards its digital platform. The cost takeout actions taken in Q2 2024, while already contemplated in guidance, could include a reduction in personnel and vendor spend related to wholesale. (Source: Q1 2024 Earnings Call Transcript)

Visualizing the Shift: Wholesale Revenue vs. Digital Solutions Growth

The following chart illustrates the contrasting trends in Lumen's wholesale and digital solutions revenue, based on hypothetical data reflecting the information from the earnings call transcript.

This subtle shift in Lumen's language could indicate a bold gamble. They are betting that the future of connectivity lies not in reselling legacy services, but in providing a digital platform that empowers customers to directly manage their increasingly complex network needs.

This hypothesis has significant implications. If Lumen is correct, the wholesale telecom landscape could be dramatically reshaped. Carriers that cling to the old model risk becoming increasingly marginalized. Lumen, however, stands to gain a first-mover advantage in a new era of digital wholesale, attracting customers seeking a modern, cloud-centric approach.

"Fun Fact: Lumen's roots go back to 1930 with the founding of Oak Ridge Telephone Company, showcasing their long history in the ever-evolving telecommunications world."

This bold bet on the death of wholesale, if successful, could prove a masterstroke in Lumen's turnaround story. It would position them not merely as a survivor in a declining market, but as a disruptor leading the charge into a new era of digital connectivity.