Lumen’s Digital Bet: From Legacy Telecom to NaaS Powerhouse

According to CRN, Lumen Technologies CEO Kate Johnson announced the company will “relentlessly pursue” its digital future by reallocating resources from analog offerings to growth areas like network-as-a-service (NaaS). The company reported reaching over $10 billion in private connectivity fabric deals signed to date and more than 1,500 NaaS customers including GE Vernova, Best Buy, and Vanderbilt University Medical Center. Lumen’s “Grow” segment, which includes higher-margin services like SASE and cloud, now represents 50% of business revenue and grew 10.5% this quarter, while legacy segments continued declining by double digits. The company expects its current $10 billion in connectivity fabric deals to yield $400-500 million in recurring revenue by 2028. This strategic shift comes as Lumen prepares to sell its mass markets fiber business to AT&T for $5.75 billion while maintaining enterprise fiber customers.

The Innovator’s Dilemma in Action

Lumen’s situation represents a textbook case of the innovator’s dilemma that plagues established telecommunications companies. As Lumen Technologies attempts to transition from its legacy infrastructure roots, it’s facing the classic challenge of managing declining cash cows while investing in emerging technologies. The numbers tell the story: while the Grow segment shows promising 10.5% growth, overall business revenue still declined 3.2% to $2.46 billion. This demonstrates how difficult it is for established players to pivot quickly enough to offset legacy declines, even with successful new offerings. CEO Kate Johnson described the initial NaaS development as being treated “as a hobby” – a common pattern where disruptive innovations start as side projects before becoming central to corporate strategy.

NaaS Market Positioning and Competitive Landscape

Lumen’s push into network-as-a-service comes at a critical inflection point for enterprise networking. The company is positioning its Connectivity Fabric as addressing a fundamental gap in traditional networks that “let precious GPU investments sit idle” – a direct appeal to organizations investing heavily in AI infrastructure. This messaging targets one of the most pressing concerns for technology leaders today: maximizing return on expensive computational investments. However, Lumen faces intense competition from cloud providers like AWS and Microsoft Azure, who are also expanding their networking-as-a-service offerings. The 1,500 NaaS customers represent solid traction, but the company will need to accelerate adoption significantly to achieve meaningful revenue impact against the backdrop of declining legacy services.

Financial Transition Risks and Opportunities

The $5.75 billion AT&T deal for Lumen’s mass markets fiber business represents both a strategic refocusing and a necessary cash infusion. By shedding consumer-facing operations, Lumen can concentrate resources on enterprise services where it maintains competitive advantages. However, this transition carries significant execution risk. The projected $400-500 million in recurring revenue from connectivity fabric by 2028 represents only about 16-20% of current quarterly business revenue, meaning the company needs multiple growth vectors to successfully replace declining legacy income. The fact that public sector revenue grew 11.2% to $478 million suggests there are pockets of strength, but the overall financial picture remains challenging with a $621 million net loss this quarter.

The Leadership and Execution Challenge

What CEO Johnson describes as needing to be “ambidextrous” – managing both legacy and new businesses simultaneously – is perhaps the most difficult aspect of corporate transformation. The chief executive officer and leadership team must make resource allocation decisions that often feel contradictory: cutting costs in declining businesses while investing aggressively in emerging ones. This requires exceptional discipline and communication throughout the organization. The risk is that cultural inertia from decades of telecom operations could slow the digital transformation, or that the company might overestimate the near-term revenue potential of new services while legacy declines accelerate faster than anticipated.

Broader Industry Implications

Lumen’s transformation journey reflects broader trends affecting traditional telecommunications providers globally. The shift from hardware-centric network architectures to software-defined, cloud-managed services represents a fundamental business model change. Where companies once derived value from physical infrastructure ownership, future value will come from software intelligence, automation, and service delivery. This transition requires different skills, different cost structures, and different customer relationships. Lumen’s progress – or lack thereof – will serve as a bellwether for whether legacy telecom providers can successfully reinvent themselves or face eventual consolidation as digital-native competitors capture market share.