Timothy Green, The Motley Fool

Sat, May 24, 2025, 4:35 AM5 min read

• AT&T is acquiring the consumer fiber assets of Lumen in an $5.75 billion deal.

• The company has a big opportunity to grow the penetration rate and bundle its wireless service.

• AT&T will offload some capital spending requirements by seeking an equity partner for the new assets.

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Telecom giant AT&T (NYSE: T) doubled down on its fiber internet strategy on Wednesday with a $5.75 billion deal to acquire Lumen's Mass Markets fiber business. The acquisition will come with approximately 1 million fiber subscribers and 4 million passed locations, expanding AT&T's fiber presence in Denver, Las Vegas, Orlando, Seattle, and other major metro areas. Lumen's assets will form a new fully owned subsidiary.

AT&T already had big plans for its fiber network before the Lumen acquisition. Previously, the company had planned to pass 50 million fiber locations by the end of 2029, mostly through its owned fiber network and with some additional reach from its Gigapower joint venture. With the Lumen deal, AT&T now expects to pass 60 million fiber locations by the end of 2030. That's about double the scale of the company's fiber network today.

Building out a vast fiber network is expensive. The Gigapower joint venture shifted some capital spending away from AT&T, and the Lumen deal will do the same. After the transaction closes in the first half of 2026, AT&T plans to sell partial ownership of the subsidiary to an equity partner that will take on some of the capital investment requirements. The company plans to find an equity partner within a year after the close of the transaction.

Once AT&T identifies an equity partner and completes the partial sale, the subsidiary will operate as a wholesale commercial open-access platform with AT&T as the core tenant. This is similar to how Gigapower operates, and it allows AT&T to expand its fiber reach without needing to take on all the capital spending necessary to grow the network.

AT&T reiterated its 2025 outlook and its plan to repurchase $10 billion of its own shares through the end of 2026. The company also expects its ratio of net debt to adjusted EBITDA to remain around 2.5 once the Lumen deal closes and it finds an equity partner.

The penetration rate of Lumen's Mass Markets fiber business, or the percentage of passed locations that subscribe to the service, is roughly 25%. That's far below the 40% penetration rate for AT&T's consumer fiber business, and it's half of AT&T's long-term target of 50%. Bringing Lumen's penetration rate up to AT&T's levels is low-hanging fruit that won't require additional capital spending.