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05/06/2021 | 06:05am EDT
Unless the context requires otherwise, (i) references in this report to "Lumen
Technologies" or "Lumen," "we," "us" and "our" refer to Lumen Technologies, Inc.
and its consolidated subsidiaries and (ii) references in this report to "Level
3" refer to Level 3 Parent, LLC and its predecessor Level 3 Communications,
Inc., which we acquired on November 1, 2017.

All references to "Notes" in this Item 2 of Part I refer to the Notes to Consolidated Financial Statements included in Item 1 of Part I of this report.

Certain statements in this report constitute forward-looking statements. See
"Special Note Regarding Forward-Looking Statements" appearing at the beginning
of this report and "Risk Factors" referenced in Item 1A of Part II of this
report or other of our filings with the SEC for a discussion of certain factors
that could cause our actual results to differ from our anticipated results or
otherwise impact our business, financial condition, results of operations,
liquidity or prospects.


Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") included herein should be read in conjunction with MD&A and
the other information included in our Annual Report on Form 10-K for the year
ended December 31, 2020 and with the consolidated financial statements and
related notes in Item 1 of Part I of this report. The results of operations and
cash flows for the first three months of the year are not necessarily indicative
of the results of operations and cash flows that might be expected for the
entire year.

We are an international facilities-based technology and communications company
focused on providing our business and mass markets customers with a broad array
of integrated services and solutions necessary to fully participate in our
rapidly evolving digital world. We believe we are the world's most
inter-connected network and our platform empowers our customers to rapidly
adjust digital programs to meet immediate demands, create efficiencies,
accelerate market access, and reduce costs - allowing customers to rapidly
evolve their IT programs to address dynamic changes without distraction from
their core competencies. With approximately 450,000 route miles of fiber optic
cable globally, we are among the largest providers of communications services to
domestic and global enterprise customers. Our terrestrial and subsea fiber optic
long-haul network throughout North America, Europe, Latin America and Asia
Pacific connects to metropolitan fiber networks that we operate. We provide
services in over 60 countries, with most of our revenue being derived in the
United States. As of March 31, 2021, we had approximately 38,000 employees.

Impact of COVID-19 Pandemic

In response to the safety and economic challenges arising out of the COVID-19
pandemic and in a continued attempt to mitigate the negative impact on our
stakeholders, we have taken a variety of steps to ensure the availability of our
network infrastructure, to promote the safety of our employees and customers, to
enable us to continue to adapt and provide our products and services worldwide
to our customers, and to strengthen our communities. In addition to other
actions described in our other reports, these steps include:

•establishing protocols for the safety of our on-site technicians and customers, including our "Safe Connections" program;

•adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel;

•continuously monitoring our network to enhance its ability to respond to changes in usage patterns;

•donating products or services in several of our communities to enhance their abilities to provide necessary support services; and

•taking steps to maintain our internal controls and the security of our systems and data in a remote work environment.


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As the pandemic continues and vaccination rates increase, we expect to revise our responses or take additional steps to adjust to changed circumstances.

Social distancing, business and school closures, travel restrictions, and other
actions taken in response to the pandemic have impacted us, our customers and
our business since March 2020. In particular, as discussed further elsewhere
herein, we have tracked pandemic impacts, including: (i) increases in certain
revenue streams and decreases in others (including late fee revenue), (ii)
increases in allowances for credit losses through the end of 2020, (iii)
increases in overtime expenses, (iv) delays in our cost transformation
initiatives and (v) an acceleration of our real estate rationalization efforts
and the incurrence of related costs. Thus far, these changes have not materially
impacted our financial performance or financial position, and, barring any
unforeseen changes in conditions, we do not expect these changes to materially
impact us during 2021. The impact of the pandemic during 2021 will materially
depend on additional steps that we may take in response to the pandemic and
various events outside of our control, including the pace of vaccinations
worldwide, the length and severity of the health crisis and economic slowdown,
actions taken by central banks, governmental agencies or legislative bodies, and
the impact of those events on our employees, suppliers and customers. For
additional information, see the risk factor disclosures referenced in Item 1A of
Part II of this report.

For additional information on the impacts of the pandemic, see the remainder of
this item, including "-Liquidity and Capital Resources - Overview of Sources and
Uses of Cash," and "- Pension and Post-retirement Benefit Obligations."

Reporting Segments

As previously announced, we completed an internal reorganization of our reporting segments in January 2021. Our reporting segments are currently organized as follows, by customer focus:

•Business Segment: Under our Business segment, we provide our products and services under four sales channels:

•International and Global Accounts ("IGAM"): Our IGAM sales channel includes
multinational and enterprise customers. We provide our products and services to
approximately 350 of our highest potential enterprise customers and to
enterprises and carriers in three operating regions: Europe Middle East and
Africa, Latin America and Asia Pacific.

•Large Enterprise: Under our large enterprise sales channel, we provide our
products and services to large enterprises and the public sector, including the
U.S. Federal government, state and local governments and research and education

•Mid-Market Enterprise: Under our mid-market enterprise sales channel, we provide our products and services to medium-sized enterprises directly and through our indirect channel partners.

•Wholesale: Under our wholesale sales channel, we provide our products and
services to a wide range of other communication providers across the wireline,
wireless, cable, voice and data center sectors.

•Mass Markets Segment: Under our Mass Markets segment, we provide products and
services to consumer and small business customers. At March 31, 2021, we served
4.7 million broadband subscribers under our Mass Markets segment.

See Note 11-Segment Information to our consolidated financial statements in Item 1 of Part I of this report for additional information.

We categorize our Business segment revenue among the following four products and services categories:

•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;


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•IP and Data Services, which includes Ethernet, IP, and VPN data networks,
including software-defined wide area networks ("SD WAN") based services, Dynamic
Connections and Hyper WAN;

•Fiber Infrastructure Services, which includes dark fiber, optical services and equipment; and

•Voice and Other, which includes Time Division Multiplexing ("TDM") voice, private line and other legacy services.

Under our Mass Markets segment, we provide the following products and services:

•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

•SBG Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

•Voice and Other, which include local and long-distance services, retail video
services (including our linear TV services), state support and other ancillary
services; and

•CAF II, which consists of Connect America Fund II support payments designed to reimburse us for various costs related to certain telecommunications services.

Trends Impacting Our Operations

In addition to the above-described impact of the pandemic, our consolidated operations have been, and are expected to continue to be, impacted by the following company-wide trends:

•Customers' demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve the customer experience and reduce our operating expenses.

•The increasingly digital environment and the growth in online video require robust, scalable network services. We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth.

•Businesses continue to adopt distributed, global operating models. We are
expanding and enhancing our fiber network, connecting more buildings to our
network to generate revenue opportunities and reducing our reliance upon other

•Industry consolidation, coupled with changes in regulation, technology and
customer preferences, are significantly reducing demand for our traditional
voice services and are pressuring some other revenue streams through volume or
rate reductions, while other advances, such as the need for lower latency
provided by Edge computing or the implementation of 5G networks, are expected to
create opportunities.

•The operating margins of several of our newer, more technologically advanced
services, some of which may connect to customers through other carriers, are
lower than the operating margins on our traditional, on-net wireline services.

•Declines in our traditional wireline services have necessitated right-sizing our cost structures to remain competitive.

Additional trends impacting our segments are discussed elsewhere in this Item 2.

Results of Operations

In this section, we discuss our overall results of operations and highlight
special items that are not included in our segment results. In "Segment Results
of Operations" we review the performance of our two reporting segments in more

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The following table summarizes the results of our consolidated operations for the three months ended March 31, 2021 and March 31, 2020:

                                                                        Three Months Ended March 31,
                                                                         2021                   2020
                                                                   (Dollars in millions, except per share
Operating revenue                                                 $         5,029                 5,228
Operating expenses                                                          4,042                 4,248
Operating income                                                              987                   980
Total other expense, net                                                     (355)                 (547)
Income before income taxes                                                    632                   433
Income tax expense                                                            157                   119
Net income                                                        $           475                   314
Basic earnings per common share                                   $          0.44                  0.29
Diluted earnings per common share                                 $          0.44                  0.29

For years, we have experienced revenue declines, excluding the impact of
acquisitions, primarily due to declines in voice and private line customers,
switched access rates and minutes of use. More recently, we have experienced
declines in revenue derived from the sale of certain of our other products and
services. To partially mitigate these revenue declines, we remain focused on
efforts to, among other things:

•promote long-term relationships with our customers through bundling of integrated services;

•increase the size, capacity, speed and usage of our networks;

•provide a wide array of diverse services, including enhanced or additional
services that may become available in the future due to, among other things,
advances in technology or improvements in our infrastructure;

•provide our premium services to a higher percentage of our customers;

•pursue acquisitions of additional assets or divestitures of non-strategic assets, in each case if available at attractive prices;

•increase prices on our products and services if and when practicable; and

•market our products and services to new customers.

Consolidated Revenue

The following table summarizes our consolidated operating revenue recorded under
each of our two segments and in our four above-described revenue sales channels
within the Business segment:


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