FCC OK's Lumen ILEC Divestiture to Brightspeed Despite CWA Concerns

The Federal Communications Commission (FCC) has given its blessing for the divestiture of Lumen incumbent local exchange carrier operations to Apollo-run Brightspeed.

The authorization marks the final regulatory approval needed for the sale, which Brightspeed expects will close in the fourth quarter. Lumen announced last year that it was selling ILEC assets in 20 states to Apollo Global Management. Apollo stated its intention of running those assets under an LLC named Connect Holding and building out fiber in underserved areas. Connect Holding has since rebranded as Brightspeed.

The FCC on Friday issued a 33-page document detailing its permission for Lumen to transfer control of its network to Connect Holding/Brightspeed. It also reiterated its conditions of the allowing the sale. The commitments include $2 billion in “equitable” fiber deployments through the next five years. For example, Brightspeed by 2023 must complete approximately 1 million fiber passings in 17 states. In addition, Brightspeed must participate in programs – such as Lifeline and the Affordable Connectivity Program – for affordable broadband.

The FCC also found that the Lumen divestiture would not eliminate competitors in the market. It noted that no one filing public comments raised decreased competition as an issue.

Counterpoints

The FCC responded to concerns from the Communications Workers of America (CWA). Although the CWA did not file a petition to deny the transaction, the union urged the FCC to require more specific commitments and related penalties for Connect Holding.

For example, the CWA and other parties worry that Brightspeed may not deploy as much fiber in the timeline that those at Apollo and Connect Holding have promised. The CWA noted that CenturyLink failed to meet broadband deployment requirements for Connect America Fund (CAF) Phase II funding.

Moreover, critics cast a wary eye on the fact that Connect Holding is part private equity company Apollo Global Management. They point to the relatively short timeline in which private equity companies sell assets.

“This short-term investment strategy stands in stark contrast with the need for service providers that intend to revitalize and maintain existing legacy services while investing in the deployment of new fiber infrastructure over the longterm,” wrote Nicholas Garcia, policy counsel at Public Knowledge earlier this year.

Garcia in the public comment cited Warrior Met Coal, which Apollo co-purchased in 2016. Garcia said the private equity firm cut worker benefits and ended labor agreements. Then it sold the company in 2019.

However, the FCC concluded that Brightspeed’s fiber deployment and network upgrades should benefit low-income customers. It also cited the company’s vowed participation in affordable broadband programs as key evidence for approving the deal.

“We accept applicants’ commitments as firm and definite and, accordingly, credit them as benefits that support a finding that the transaction is in the public interest. Absent any potential harms, and considering that the proposed transaction will yield some benefits, we find, on balance, that the proposed transaction serves the public interest,” the FCC wrote.

Channel Impact

Brightspeed is putting together its channel go-to-market strategy and promises to replicate much of what Lumen was doing in the agent channel. For example, Brightspeed’s vice president of enterprise sales, Andy Rodriguez, said the company is crafting a new partner agreement. The company will offer it to the largest technology service distributors (TSDs), as well as other TSDs. It is also emphasizing channel integration to its direct sales team.

Brightspeed’s Andy Rodriguez

“Our strategy will tightly integrate our indirect and direct sales teams. Again, we are building a partner-friendly culture throughout the sales organization. Everyone on the team – field sales, inside sales, sales engineering and customer success – will have a responsibility to engage and develop partner relationships in their territories. Our compensation plan will be competitive and mutually beneficial,” Rodriguez told Channel Futures.

Read the initial news story about the $7.5 billion Lumen divestiture and analysis containing comments from Lumen and Lumen partners.