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Item 1. Business

2023-02-23 compared with 2022-02-24 · 129 added, 128 removed, 269 unchanged (49% of the section changed)

Business Overview and Purpose

We are an international facilities-based technology and communications company focused on providing our business and residential customers with a broad array of integrated products and services necessary to fully participate in our rapidly evolving digital world, which we believe is undergoing the “Fourth Industrial Revolution” or simply the “4IR.” We operate one of the world’s most interconnected networks.

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 information, communications and technology programs to address dynamic changes.

By empowering our customers to rapidly acquire, analyze and act on data, we are enabling our customers to thrive in the 4IR.

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 products and services necessary to fully participate in our ever-evolving digital world.

We operate one of the world’s most interconnected networks.

Our platform empowers our customers to swiftly 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.

Our specific products and services are detailed below under the heading “Segments and Products & Services.”

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With approximately 160,000 on-net buildings and 400,000 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.

Our terrestrial and subsea fiber optic long-haul network throughout North America, Europe 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 ("U.S.").

As further discussed immediately below under the heading “Acquisitions and Divestitures,” during 2022 we plan to sell our Latin American business and a portion of our incumbent local exchange business.

As further discussed immediately below under the heading “Acquisitions and Divestitures,” we sold our Latin American business and a portion of our incumbent local exchange business ("ILEC") during 2022 and have agreed to sell our business conducted in Europe, the Middle East and Africa ("EMEA").

For a discussion of certain risks applicable to our business, see “Risk Factors” in Item 1A of Part I of this report.

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in late 2017.

These acquisitions have substantially changed our customer base, geographic footprint, business strategies and mix of products and services.

These acquisitions substantially changed our customer base, geographic footprint, business strategies and mix of products and services.

We regularly evaluate the possibility of acquiring additional assets or divesting assets in exchange for cash, securities or other properties, and at any given time may be engaged in discussions or negotiations regarding additional acquisitions or divestitures.

We generally do not announce our acquisitions or divestitures until we have entered into a preliminary or definitive agreement.

Planned Divestitures of the Latin American Business and Incumbent Local Exchange Business

On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., entered into a definitive agreement to divest our Latin American business in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and related transaction expenses.

Level 3 Parent, LLC anticipates closing the transaction mid-year 2022, upon receipt of all requisite regulatory approvals in the U.S.

and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions.

On August 3, 2021, we and certain of our affiliates entered into a definitive agreement to divest our incumbent local exchange ("ILEC") business conducted within 20 Midwestern and Southern states.

In exchange, we would receive $7.5 billion, subject to offsets for (i) assumed indebtedness and (ii) our transaction expenses, certain of purchaser’s transaction expenses, taxes and certain working capital and other customary purchase price adjustments.

We anticipate closing the transaction mid-year 2022 upon receipt of all regulatory approvals and the satisfaction of other customary closing conditions.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report for additional information on these transactions.

Divestitures of the Latin American and ILEC businesses and Planned Divestiture of the EMEA Business

On August 1, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., sold Lumen’s Latin American business and on October 3, 2022, we and certain of our affiliates sold the portion of our facilities-based ILEC business primarily conducted within 20 Midwestern and Southeastern states in each case in exchange for the consideration described in Items 7 and 8 in Part II of this report.

Under agreements entered into on November 2, 2022 and February 8, 2023, affiliates of Level 3 Parent, LLC have agreed to divest certain operations in EMEA to Colt Technology Services Group Limited, a portfolio company of Fidelity Investments, in exchange for $1.8 billion in cash, subject to certain post-closing adjustments.

Level 3 Parent, LLC expects to close the transaction as early as late 2023, following receipt of all requisite regulatory approvals in the U.S.

and certain countries where the EMEA business operates, as well as the satisfaction of other customary conditions.

See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business to our consolidated financial statements in Item 8 of Part II of this report for additional information on these transactions.

Financial Highlights

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Operating expenses 17,383 15,402 19,750

Operating income (loss) $ 4,285 962 (2,726)

Net income (loss) $ 2,033 (1,232) (5,269)

Operating income $ 95 4,285 962

Net (loss) income $ (1,548) 2,033 (1,232)

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For additional information, see Note 3—Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report.

We estimate that during 2021, 2020 and 2019, approximately 9.4%, 8.7% and 8.5%, respectively, of our consolidated revenue was derived from providing telecommunications, colocation and hosting services outside the U.S.

We estimate that during 2022, 2021 and 2020, approximately 8.6%, 9.4% and 8.7%, respectively, of our consolidated revenue was derived outside the U.S.

The following table summarizes certain selected financial information from our consolidated balance sheets:

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The summary financial information appearing above should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and notes thereto in Item 8 of Part II of this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.

Our over-arching strategic goal is to continue integrating and upgrading our global network and other assets and technologies into an advanced high-bandwidth, low latency platform that is secure, reliable and fast.

Our over-arching strategic goal is to digitally connect people, data, and applications quickly, securely, and effortlessly.

To attain this goal, we strive to, among other things:

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• expand our network capacity through our Quantum Fiber buildout plan and other initiatives;

• return a substantial amount of cash to our shareholders in the form of dividends and periodic stock repurchases;

• monetize our non-core assets and manage our non-fiber business for cash;

• monetize our non-core assets and deliver cost-effective operations;

• manage our non-fiber business for cash;

• strengthen our financial position and performance through debt paydown and cost reduction efforts.

Our Stakeholders

We believe realizing the Lumen promise depends on regular, informed communications with our stakeholders, including shareholders, employees, customers, vendors, lenders, partners and our global community.

For years, one of our core tenets has been our belief that our success depends on regular communications with our stakeholders.

When our new CEO, Kate Johnson, joined us in November 2022, her first major initiative was the creation of a "North Star" team, designed to further sharpen our focus on attaining our goals through relentlessly seeking input from all of our stakeholders including our investors, employees, customers, vendors, partners and our global community.

Employees and Human Capital Resources

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Understanding and anticipating the priorities of our current and future employees is important to our future success.

We aim to bring together the best mix of diverse talent to develop the brightest ideas to transform industries across the globe.

At December 31, 2022, we had approximately 29,000 employees world-wide, including approximately 5,000 outside the U.S.

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Our recruiting, development and retention objectives focus on treating talent as a differentiator and a leading indicator of business performance.

We strive to hire and retain the best talent available, to be transparent with regards to new career and promotional opportunities, to mitigate bias and to champion fair selection and best hiring practices.

We strive to hire and retain the best talent available and provide outstanding opportunities for career advancement, starting with a fair and unbiased hiring process.

We have implemented diverse interview panels, which include at least one woman or person of color, to minimize the potential for unconscious bias in our recruitment process.

Establishing a framework of competency-based success profiles and fostering career progression through regular career development and training empowers our employees to pursue their professional goals and helps to improve employee engagement and retention.

We invest in broad-based development for all of our employees in various ways such as skills-building programs, on-demand learning options, tuition reimbursement, tailored mentoring programs and a suite of leadership development courses.

In an effort to create more development opportunities for all employees, we are currently enhancing our intern, mentoring and leadership development programs, with added focus on development for diverse employees.

We invest in broad-based development for our employees in various ways such as skills-building programs, on-demand learning options, tuition reimbursement and tailored intern and mentoring programs, along with a suite of leadership development courses.

In an effort to create more development opportunities for all employees, we are currently expanding our mentoring and leadership development programs, with added focus on development for diverse employees.

We believe we have made significant strides in attracting, engaging, and hiring a diverse group of early career employees through our internship program, our numerous sales and operations academies, and our "pathways in technology" program.

We have also increased our focus on internal mobility and providing more visibility and career opportunities to our workforce through our internal communications platforms.

We gauge progress and efficacy, identify opportunities for change, and pursue solutions through tracking and analyzing data from various sources, such as annual talent reviews and measuring our progress toward goals specified in our development, diversity and inclusion plans.

We have also increased our focus on fostering internal mobility and providing more visibility and career advancement opportunities to our workforce through our internal communications platforms.

We gauge the efficacy of our programs, identify opportunities for improvement, and pursue solutions through tracking and analyzing data in a variety of ways, including conducting annual talent reviews and measuring our progress toward goals specified in our development, diversity and inclusion plans.

Diversity, Inclusion & Belonging

We believe that understanding and respecting another's perspective, experience, background and beliefs provide an opportunity to expand horizons, challenge complacency and foster empathy.

For Lumen, we believe diversity of perspective, experience, background and beliefs fuels our innovative, collaborative, and engaged workplace.

We believe that diversity stimulates creativity, spurs innovation and helps drive profitability, which is why we strive to create inclusive, welcoming workplaces where everyone can feel at home, be their authentic selves and thrive.

Realizing greater ethnic, racial and gender diversity across all levels of an organization is, and will continue to be, an ongoing journey.

Our Diversity & Inclusion Steering Committee, comprised of a cross-functional team of senior executives and led by our Chief Diversity & Inclusion Officer, regularly evaluates and seeks to define our diversity, inclusion and belonging strategy.

Our Diversity & Inclusion Steering Committee, comprised of a cross-functional team of senior executives and led by our Chief Diversity & Inclusion Officer, oversees and champions our diversity, inclusion and belonging strategy.

We aim for the highest standards of fairness and equal opportunity in recruitment, hiring, promotions, job assignments and compensation (including undertaking periodic gender and race/ethnicity pay equity studies of our U.S., non-represented employees and making pay adjustments when warranted).

Inclusive recruiting and outreach programs for diverse candidates, employee resource groups, and management-led listening circles are among some of Lumen’s initiatives to create greater diversity and belonging among our employees.

Inclusive recruiting and outreach programs for diverse candidates, supportive and engaging employee resource groups, and management-led listening circles are among some of Lumen’s initiatives to create greater diversity and belonging among our employees.

Positive Corporate Culture

Our employees are critical to Lumen's success and we believe creating a positive, inclusive culture is essential to attracting and retaining engaged employees.

We want our employees to be proud to work with us and fully engaged to share in our purpose to further human progress through technology.

Lumen’s company culture program incorporates a wide variety of communication and training activities encouraging collaboration among our colleagues around the world.

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Health & Wellness

We believe a healthy, engaged and high performing workforce is part of our competitive advantage.

We want all of our employees to thrive, and we regularly re-evaluate how to best support our employees’ wellness, health and safety through benefits and resources.

Our current benefit and wellness programs drive engagement that positively impacts our culture, job satisfaction, recruiting and retention programs.

In response to the COVID-19 pandemic, we expanded our physical, mental, and family health programs and informational outreach.

Additional information about our COVID-19 response is located under Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.

We are committed to promoting the health, safety and well-being of our employees, business partners and global communities.

We want all of our employees to thrive, and we regularly re-evaluate how to best support our employees’ well-being through benefits and resources.

We design our current benefit and wellness programs to drive engagement that positively impacts our culture, job satisfaction, recruiting and retention programs.

We offer progressive employee benefits and enhancements that recognize the diverse needs of our people and their families.

Labor Relations

Approximately 21% of our U.S.

workforce is represented by a union, either the Communications Workers of America or the International Brotherhood of Electrical Workers.

At December 31, 2022, approximately 20% of our U.S.

workforce was represented by a union, either the Communications Workers of America or the International Brotherhood of Electrical Workers.

Employees in four countries in Europe are represented by works councils or a representative body.

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Our customers range from individual households to global enterprises.

Whether our network supports remote education or a multi-national work-from-home environment, all customers are impacted by the quality and reliability of our products and services.

Whether our network supports remote education to under-served communities or a multi-national work-from-home enterprise, all customers are impacted by the quality and reliability of our products and services.

Understanding how each customer accesses and uses our products and services informs the type of customer engagement to best meet their expectations.

One of our new CEO's top priorities after joining us in late 2022 was reshaping our senior leadership team to further increase our focus on customer engagement.

Our Customer Success organization includes dedicated teams focused on building deeper relationships and providing us the opportunity to continually improve our customers’ Lumen experience, including their interactions with our employees and systems.

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We have a dedicated team responsible for evaluating the best approach to improving the experiences of customers, coupled with frequent, transparent and informative communication processes.

We value both customer and employee suggestions.

We highly value both customer and employee suggestions.

We offer our customers several channels for communicating with us, including voice, text, email, chat and social media, among others.

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Partners and Vendors

Understanding how our customers access and use our products and services is an important element of evaluating which partners and vendors may best contribute to our customers’ success.

Lumen leverages our relationships and by co-innovating with a comprehensive group of strategic partners to create solutions focused exclusively on our customers' business and IT requirements.

We seek to engage with those partners and vendors who best contribute to our customers’ success.

Lumen seeks to co-innovate with a comprehensive group of strategic partners to create solutions focused exclusively on our customers' business and IT requirements.

Through our open and interoperable approach, we seek to identify the optimal platform for serving our customers – whether ours or a third party’s.

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Lumen has collaborated with a host of technology partners, giving us the capability to tailor and fully manage scalable solutions that customers control.

Lumen, by working with our network of technology partners, can integrate different partners and technologies, to improve our products and services.

Lumen, by working with our network of technology partners, integrates different technologies to improve our products and services.

In light of these efforts to better serve our customers, we are materially reliant on a wide range of vendors to support our organization and partners to support our strategy.

We work with, and rely on, other communications companies that lease us transmission capacity or sell us various services necessary for our current operations, as well as a wide range of software, hardware and equipment suppliers.

We believe that co-innovating with other companies provides the flexibility to rapidly evolve our customer offerings.

We believe that co-innovating with other companies enables us to rapidly evolve our customer offerings.

Environmental Stewardship and Sustainability

Environmental stewardship is inherent in our identity.

We review the impact of our operations and make choices to reduce our environmental footprint.

We believe our commitment to environmental sustainability promotes the financial health of our business, the quality of service we provide and value creation for our employees, communities, customers and investors.

Our Environment, Health and Safety ("EHS") team oversees and executes the company’s EHS and environmental sustainability visions.

Environmental stewardship is inherent to our mission and identity.

We believe our commitment to environmental sustainability promotes the financial health of our business and strengthens our relations with our employees, communities, customers and investors.

In early 2022, we formed the Sustainability Management Committee (“SMC”) comprised of employees from across the business.

The SMC designs and oversees our company-wide sustainability program, including the monitoring of climate-related issues, and is responsible for driving the sustainability agenda with the Board and senior leadership.

Additionally, our Environment, Health and Safety ("EHS") team is responsible for overseeing and implementing our EHS and environmental sustainability initiatives.

The EHS program framework focuses on seven key areas:

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• Energy and emissions:

To reduce our carbon footprint, we are identifying and implementing energy efficiency and greenhouse gas ("GHG") emissions reduction initiatives.

In an effort to reduce our carbon footprint, we continue to identify and implement energy efficiency and greenhouse gas ("GHG") emissions reduction initiatives.

As we continue to track performance against our 2025 science-based targets, we remain committed to exploring ways to reduce GHG emissions through our operational, customer and employee initiatives.

In January 2021, we were among the very first U.S.

companies to issue sustainability-linked bonds.

Lumen uses the World Resource Institute’s water quality index to assess our operations in drought-stricken areas or areas that have the potential to be in the future.

We are working to reduce our consumption of water overall and especially in countries or regions identified as high-risk.

We aim to reduce our waste through minimization, re-use and recycling.

We divert millions of pounds of electronic and communications equipment from landfills each year.

Lumen uses the World Resource Institute’s Water Risk Atlas to assess which countries of operation face the highest risk of water stress.

We strive to reduce our water consumption, especially in the water-stressed communities where we operate.

We track our usage and closely monitor abnormalities to improve water efficiencies and reduce site discharge.

We are committed to reusing and recycling products, minimizing material use and carefully managing our waste.

Each year, we divert millions of pounds of electronic and communications equipment from landfills.

We recycle telecommunications equipment, and our modem/router takeback program allows customers to return their equipment, which are then either reused or sent to an R2-certified recycler.

• Supplier environmental assessment:

We expect our suppliers to demonstrate the same commitment as us to compliance and sustainability efforts.

We expect our suppliers to use reasonable efforts to employ environmentally preferred and energy-efficient services, and to work with their own suppliers to assess and address environmental and sustainability issues within their supply chains.

We expect our suppliers to embrace and share our commitment to compliance and sustainability efforts.

As reflected in our Supplier Code of Conduct, we expect our suppliers to use reasonable efforts to employ environmentally preferred and energy-efficient services, and to work with their own suppliers to assess and address environmental and sustainability issues within their supply chains.

• Climate preparedness:

We prepare for potential impacts by evaluating various climate change risks to our ongoing operations when we consider opening new facilities and/or expanding our network.

We evaluate various climate change risks to our ongoing operations when we consider expanding our network or facilities.

Our comprehensive business continuity program focuses on prevention, collaboration, communication, response and recovery to assist us in quickly resolving disruptive events.

Weather events such as severe flooding and hurricanes can impact our ability to deliver services, so business resiliency and adaptability is key to the long-term viability of our business.

• Occupational Health and Safety:

The EHS team conducts risk assessments and monitors health and safety legislation to develop policies and procedures designed to eliminate or control safety hazards and support compliance with applicable laws and regulations.

Our network, through which we provide most of our products and services, consists of fiber-optic and copper cables, high-speed transport equipment, electronics, voice switches, data switches and routers, and various other equipment.

The EHS team conducts risk assessments, reviews safety incident data and monitors health and safety legislation to develop policies and procedures designed to minimize safety hazards and support compliance with applicable laws and regulations.

We carry out periodic reviews to identify steps designed to improve overall safety performance.

We operate part of our network with leased assets, and a substantial portion of our equipment with licensed software.

At December 31, 2021, our global network (owned and leased) included (i) approximately 500,000 route miles of fiber optic plant, including approximately 42,000 route miles of subsea fiber optic cable systems and (ii) multiple gateway and transmission facilities used in connection with operating our network throughout North America, Europe and Latin America.

At December 31, 2021, our domestic network connected approximately 190,000 on-net buildings, which we refer to as “Fiber On-net” buildings, serving our enterprise customer base and approximately 28.6 million broadband-enabled locations serving our Mass Markets customer base.

At December 31, 2021, our Mass Markets broadband-enabled locations consisted of 25.8 million copper-based passings and 2.8 million fiber-based passings.

It also included at such date central office and other equipment that enables us to provide telephone service as an incumbent local exchange carrier ("ILEC") in 37 states.

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report and Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report, we have agreed to sell portions of our above-described network during 2022.

At December 31, 2022, our global network (owned and leased) included (i) approximately 400,000 route miles of fiber optic plant, including approximately 25,000 route miles of subsea fiber optic cable systems and (ii) multiple gateway and transmission facilities used in connection with operating our network throughout North America and Europe.

At December 31, 2022, our domestic network connected (i) approximately 160,000 on-net buildings, which we refer to as “Fiber On-net” buildings, serving our enterprise customer base and (ii) approximately 21.8 million broadband-enabled units serving our Mass Markets customer base.

At December 31, 2022, approximately 3.1 million of our Mass Markets broadband-enabled units were capable of receiving services from our fiber-based infrastructure, with the remainder connected with copper-based infrastructure.

Our domestic network also included at such date central office and other equipment that enables us to provide telephone service as an ILEC.

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report and Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business to our consolidated financial statements in Item 8 of Part II of this report, we sold portions of our network during 2022 and have agreed to sell portions thereof upon receipt of various approvals.

As noted elsewhere in this report, we view our network as one of our most critical assets.

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A key element of our network expansion plan is our Quantum Fiber buildout project.

Under this project, we propose over the next several years to construct additional fiber optic infrastructure to enable us to provide Quantum Fiber broadband services to several million additional urban and suburban locations in our ILEC markets.

Although we own most of our network, we lease a substantial portion of our core fiber network from several other communication companies under arrangements that will periodically need to be renewed or replaced to support our current network operations.

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We expect continued intense competition from a wide variety of sources under these evolving market conditions.

In addition to competition from large international communications providers, we are facing competition from a growing number of sources, including systems integrators, cloud service providers, software networking companies, infrastructure companies, cable companies, device providers, resellers and smaller niche providers.

In addition to competition from large international communications providers, we are facing competition from a growing number of sources, including systems integrators, hyperscalers, cloud service providers, software networking companies, infrastructure companies, cable companies, wireless service providers, device providers, resellers and smaller niche providers.

Our ability to compete hinges upon effectively enhancing and better integrating our existing products, introducing new products on a timely and cost-effective basis, meeting changing customer needs, providing high-quality information security to build customer confidence and combat cyber-attacks, extending our core technology into new applications and anticipating emerging standards, business models, software delivery methods and other technological changes.

Depending on the applicable market and requested services, competition can be intense, especially if competitors in the market have network assets better suited to customer needs, faster transmission speeds or lower prices, or, in certain overseas markets, are national or regional incumbent communications providers that have a longer history of providing service in the market.

For our traditional voice services, providers of wireless voice, social networking and electronic messaging services are significant competitors as many customers are increasingly relying on these providers to communicate, resulting in the long-term systemic decline we have seen in our legacy, traditional voice services.

Depending on the applicable market and services, competition can be intense, especially if competitors in the market have network assets better suited to customer needs, faster transmission speeds or lower prices, or, in certain overseas markets, are national or regional incumbent communications providers that have a longer history of providing service in the market.

We compete to provide services to business customers based on a variety of factors, including the comprehensiveness and reliability of our network, our data transmission speeds, price, the latency of our available network services, the scope of our integrated offerings, the reach and peering capacity of our IP network, and customer service.

Competition from large communications providers, systems integrators, hyperscalers and others have increased pricing pressures with respect to several key products and services that we offer to our enterprise and wholesale business customers.

In particular, several hyperscalers have recently built their own data transmission facilities, which has reduced demand for our network services.

Competition to provide broadband services to our mass markets customers remains high.

Market demand for our broadband services could be adversely affected by (i) advanced wireless data transmission technologies, including fixed wireless and low-earth-orbit satellite services, and (ii) continued enhancements to cable-based services, each of which generally provides faster average broadband transmission speeds than our legacy copper-based infrastructure.

In addition, several established or new communications companies, infrastructure companies or municipalities have built or are building new fiber-based networks to provide high-speed broadband services in existing or unserved markets, frequently with the support of governmental subsidies.

Our network expansion and innovation strategy is focused largely on addressing these competitive pressures.

To meet these demands and remain competitive, we are continuing to invest in network capacity, security, reliability, flexibility and design innovations, including through our Quantum Fiber buildout initiative.

For our traditional voice services, providers of wireless voice, social networking, videoconferencing and electronic messaging services are significant competitors as many customers are increasingly relying on these providers to communicate, resulting in the long-term systemic decline we have seen in our traditional voice services.

Other potential sources of competition include non-carrier systems that are capable of bypassing our local networks, either partially or completely, through various means.

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CLECs provide competing services through (i) reselling an ILEC’s local services, (ii) using an ILEC’s unbundled network elements, (iii) operating their own facilities or (iv) a combination thereof.

Competition to provide broadband and other data services remains high.

Market demand for our broadband services could be adversely affected by advanced wireless data transmission technologies and other systems delivering generally faster average broadband transmission speeds than our legacy copper-based infrastructure.

Our network expansion and innovation strategy is focused largely on addressing these competitive pressures.

As both residential and business customers increasingly demand high-speed connections for entertainment, communications and productivity, we expect the demands on our network will continue to increase over the next several years.

To meet these demands and remain competitive, we are continuing to invest in network capacity, security, reliability, flexibility and design innovations, such as through our Quantum Fiber buildout, to deliver competitive high-speed services.

Additional information about competitive pressures is located under the heading “Risk Factors—Business Risks” in Item 1A of Part I of this report.

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Market Overview

Anticipating market trends drives our investment in developing new product and service offerings.

We expect edge computing services demand to significantly increase over the next several years in several industries, including finance, healthcare, retail and manufacturing.

We also expect secure network services will increase in importance to consumers.

We believe we have a comprehensive set of global fiber assets that positions us to deliver a highly-competitive suite of cloud connectivity, low latency edge computing, and integrated network services.

We believe we have a comprehensive set of fiber assets that positions us to deliver a highly-competitive suite of cloud connectivity, low latency edge computing, and integrated network services.

We generally market our business services to members of in-house IT departments or other highly-sophisticated customers with deep technological experience.

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To meet the needs of different customers, our offerings include both stand-alone services and bundled services designed to provide a complete offering of integrated services.

Our sales and marketing approach to our business customers includes a commitment to provide comprehensive communications and IT solutions for business, wholesale and government customers of all sizes, ranging from small business offices to the world’s largest global enterprise customers.

Our business customers range from small business offices to the world’s largest global enterprise customers.

Our marketing plans include marketing our products and services primarily through direct sales representatives, inbound call centers, telemarketing and third parties, including telecommunications agents, system integrators, value-added resellers and other telecommunications firms.

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• Mass Markets Segment:

Under our Mass Markets segment, we provide products and services to consumer and small business customers.

Under our Mass Markets segment, we provide products and services to residential and small business customers.

The following table shows the composition of our operating revenue by segment for the years ended December 31, 2022, 2021 and 2020:

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Products & Services

Since the first quarter of 2021, we have categorized our products and services revenue among the following product categories for the Business segment:

At December 31, 2022, we categorized our products and services revenue among the following product categories for the Business segment:

• Compute and Application Services

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We provide both public and private cloud solutions that allow our customers to optimize cost and performance by offloading workloads.

Lumen’s cloud products leverage our network edge to provide low-latency secure services for our customers.

Lumen’s cloud products are designed to leverage our network edge to provide low-latency secure services for our customers.

Additionally, we provide cloud orchestration tools that allow customers to shift work between cloud environments dynamically;

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We craft technology solutions for our customers and often manage these solutions on an ongoing basis.

These services frequently enhance equipment or networks owned, acquired, or controlled by the customer and often include our consulting or software development;

These services frequently enhance equipment or networks owned, acquired, or controlled by the customer and often include our consulting or software development services;

◦ Unified Communications and Collaboration ("UC&C").

We provide access to various unified communications platforms.

This offering includes both individual, license-based UC&C models and more robust options that transform a customer’s inbound and outbound calling platform;

This offering includes both individual, license-based service models and more robust options that transform a customer’s inbound and outbound calling platform;

◦ Colocation and Data Center Services .

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Our IP services provide global internet access over a high performance, diverse network with connectivity in more than 60 countries.

Our fiber network spans approximately 500,000 route miles globally with extensive off-net access solutions across North America, Europe, Latin America and Asia Pacific;

Our fiber network spans approximately 400,000 route miles globally with extensive off-net access solutions across North America, Europe and Asia Pacific;

◦ VPN Data Networks.

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◦ Voice Over Internet Protocol (“VoIP”).

We deliver a broad range of local and enterprise voice and data services built on VoIP technology, including VoIP enhanced local service, national and multinational SIP trunking, hosted VoIP service, Primary Rate Interface ("PRI") service support, long distance service and toll-free service.

We deliver a broad range of local and enterprise voice and data services built on VoIP technology, including VoIP enhanced local service, national and multinational session initiation protocol ("SIP") trunking, hosted VoIP service, Primary Rate Interface ("PRI") service support, long distance service and toll-free service.

• Fiber Infrastructure Services

◦ Dark Fiber.

We possess an extensive array of unlit optical fiber known as “dark fiber,” which has been laid but not yet been equipped with the equipment necessary for it to transmit data.

Many large enterprises are interested in building their networks with this high-bandwidth, highly secure optical technology.

We provide professional services to engineer these networks, and in some cases, manage them for customers;

We control an extensive array of unlit optical fiber known as “dark fiber,” which has been laid but not yet been equipped with the equipment necessary for it to transmit data.

We provide access to this unlit optical fiber to customers who are interested in building their networks with this high-bandwidth, highly secure optical technology.

We also provide professional services to engineer these networks, and in some cases, manage them for customers;

◦ Optical Services.

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At December 31, 2022, we reported our products and services revenue among the following categories for the Mass Markets segment:

• Consumer Broadband.

Includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

• Small Business Group ("SBG") .

Includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

• Voice and Other.

Includes primarily local and long-distance services, professional services and other ancillary services;

• Connect America Fund ("CAF") II.

C onsists of CAF Phase II payments through the end of 2021 to support voice and broadband in Federal Communications Commission ("FCC") designated high-cost areas.

• Fiber Broadband , under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure;

• Other Broadband , under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure;

• Voice and Other, under which we derive revenues from (i) providing local and long-distance voice services, professional services, and other ancillary services, and (ii) federal broadband and state support payments.

Research, Development & Intellectual Property

As of December 31, 2021, we had approximately 2,800 patents and patent applications in the U.S.

As of December 31, 2022, we held approximately 2,900 patents and patent applications in the U.S.

and other countries.

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Regulation of Our Business

Our domestic operations are regulated by the FCC, by various state regulatory commissions and occasionally by local agencies.

Our domestic operations are regulated by the Federal Communications Commission (the "FCC"), by various state regulatory commissions and occasionally by local agencies.

Our non-domestic operations are regulated by supranational groups (such as the European Union, or EU), national agencies and frequently state, provincial or local bodies.

Generally, we must obtain and maintain operating licenses from these bodies in most areas where we offer regulated services.

For information on the risks associated with the regulations discussed below, see “Risk Factors—Legal and Regulatory Risks” in Item 1A of Part I of this report.

Changes in the composition and leadership of the FCC, state regulatory commissions and other agencies that regulate our business could have significant impacts on our revenue, expenses, competitive position and prospects.

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Universal Service

In 2015, we accepted CAF funding from the FCC of approximately $500 million per year for six years to fund the deployment of voice and broadband capable infrastructure for approximately 1.2 million rural households and businesses in 33 of the 37 states in which we then operated as an ILEC under the CAF Phase II high-cost support program.

As a result of accepting CAF Phase II support payments for 33 states, as well as existing merger-related commitments, we were obligated to make substantial capital expenditures to build infrastructure by certain specified milestone deadlines.

In accordance with the FCC’s January 2020 order, we elected to receive an additional year of CAF Phase II funding in the end of 2021.

In early 2020, the FCC created the Rural Digital Opportunity Fund (the “RDOF”), which is a new federal support program designed to replace the CAF Phase II program.

Between 2015 and 2021, we received approximately $500 million annually through Phase II of the FCC's Connect America Fund ("CAF II"), a program that ended on December 31, 2021.

In connection with the CAF II funding, we were required to meet certain specified infrastructure buildout requirements in 33 states by the end of 2021, which required substantial capital expenditures.

In the first quarter of 2022, we recognized $59 million of previously deferred revenue related to the conclusion of the CAF II program based upon our final buildout and filing submissions.

The government has the right to audit our compliance with the CAF II program.

The ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our reserve accruals established for these matters.

In early 2020, the FCC created the Rural Digital Opportunity Fund (the “RDOF”), which is a federal support program designed to replace the CAF II program.

On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations.

We won bids for RDOF Phase I support payments of $26 million, annually.

We expect our support payments under the RDOF Phase I program will begin soon after our anticipated receipt of the FCC's approval of our pending application.

Assuming we timely complete our pending divestiture of the ILEC business on the terms described herein, we expect a portion of these payments will accrue to the purchaser of that business.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report for additional information.

For additional information about the potential financial impact of the CAF Phase II program, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this report.

We won bids to receive approximately $26 million of annual RDOF Phase I support payments, of which approximately 36% is attributable to the ILEC business we divested on October 3, 2022.

Our support payments under the RDOF Phase I program commenced during the second quarter of 2022.

In November 2021, the U.S.

Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants.

As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us.

It remains premature to speculate on the potential impact of this legislation on us.

For additional information about these programs, see (i) Note 4—Revenue Recognition to our consolidated financial statements in Item 8 of Part II of this report and (ii) "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this report.

Broadband Regulation

In February 2015, the FCC adopted an order classifying broadband internet access services (“BIAS”) under Title II of the Communications Act of 1934 and applying new regulations.

In December 2017, the FCC voted to repeal the classification of BIAS as a Title II service and to preempt states from imposing substantial regulations on broadband.

In December 2017, the FCC voted to repeal the classification of BIAS as a Title II service and to preempt states from imposing substantial regulations on broadband services.

Opponents of this change appealed this action in federal court.

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In most states, switched and business data services and interconnection services are subject to price regulation, although the extent of regulation varies by type of service and geographic region.

In addition, our Voice-Over-Internet Protocol services are regulated more lightly than legacy telephone services.

In addition, Voice-Over-Internet Protocol services are regulated by state regulators, but more lightly than ILEC services.

State agencies also regulate certain aspects of non-ILEC communications businesses, including administering the payment of federal subsidies to support broadband infrastructure construction.

Data Privacy Regulations

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Data privacy regulations are complex and vary across jurisdictions.

As a global company, we must comply with various jurisdictional data privacy regulations, including the General Data Protection Regulation (“GDPR”) in the EU and similar laws adopted by various other jurisdictions in certain of our domestic and overseas markets.

As a company with global operations, we must comply with various jurisdictional data privacy regulations, including the General Data Protection Regulation (“GDPR”) in the EU and similar laws adopted by various other jurisdictions in certain of our domestic and overseas markets.

The application, interpretation and enforcement of these laws are often uncertain, and may be interpreted and applied inconsistently from jurisdiction to jurisdiction.

These regulations require careful handling of personal and customer data and could have a significant impact on our business.

We have adopted data handling policies and practices to comply with global data privacy requirements, including GDPR and similar regulations.

These regulations require careful handling of personal and customer data and could have a significant impact on our business, especially if we violate any of those regulations.

Anti-Bribery and Corruption Regulations

As a global company we must comply with complex foreign and U.S.

As a company with global operations, we must comply with complex foreign and U.S.

laws and regulations governing business ethics and practices, such as the U.S.

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Bribery Act and other local laws prohibiting corrupt payments to governmental officials and anti-competition regulations.

We have compliance policies, programs and training to prevent non-compliance with such anti-corruption regulations in the U.S.

We have compliance policies, programs and training designed to prevent non-compliance with such anti-corruption regulations in the U.S.

and other jurisdictions.

International Regulations

Regulation of International Operations

Our subsidiaries operating outside of the U.S.

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Many issues, including the pricing of services, have not been addressed fully, or even at all.

The United Kingdom (“UK”) recently terminated its membership in the EU (“Brexit”) and has entered into related separation agreements with the EU regarding data sharing, financial services and other matters.

Several factors which are currently unknown will influence Brexit’s ultimate impact on our business.

We operate a staging facility in the UK, where certain core network elements and customer premises equipment is configured before being shipped to both UK and EU locations.

Our overseas operations are also subject to various other domestic or non-domestic laws or regulations, including various laws or regulations governing exports and imports of various goods or technologies and certain sanctioned business activities.

In 2020, the United Kingdom (“UK”) terminated its membership in the EU (“Brexit”) and has entered into related separation agreements with the EU regarding data sharing, financial services and other matters.

We currently operate a staging facility in the UK, where certain core network elements and customer premise equipment is configured before being shipped to both UK and EU locations.

The UK is currently also a central repository of our spare parts for use in our European operations.

However, we have also established a third party sparing facility in Amsterdam which we believe will help mitigate potential disruptions resulting from any impediments to the free movement of goods between the EU and the UK.

Given the small percentage of our global personnel that are UK or EU nationals, we do not anticipate any adverse impact from Brexit on our workforce.

We are currently monitoring Brexit developments, reviewing our supply chain alternatives, and assessing the short and long-term implications of Brexit on our operations.

Nonetheless, based on current information, we do not anticipate Brexit will have a substantial impact on our business.

Our overseas operations are subject to various U.S.

export and sanctions laws and regulations.

Our deconsolidated Venezuelan affiliate conducts operations in Venezuela, which is currently subject to certain U.S.

Nonetheless, only a relatively small portion of our business is conducted within the UK, and we have entered into an arrangement to sell our EMEA operations.

Consequently, we do not anticipate Brexit will have a substantial impact on our business.

Other Regulations

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From time to time, we may make investments in other communications or technology companies.

For further information on regulatory, technological and competitive factors that could impact our revenue, see "Regulation" under this Item 1, above, and "Competition" under this Item 1, above, and "Risk Factors" under Item 1A, below.

For further information on regulatory, technological and competitive factors that could impact our revenue, see "Regulation" above under this Item 1, "Competition" above under this Item 1, "Risk Factors" below under Item 1A.

For more information on the financial contributions of our various services, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this report.

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The information contained on, or that may be accessed through, our website is not part of this report or any other periodic reports that we file with the SEC.

Any references to our website in this report or any other periodic reports that we file with the SEC are provided for convenience only, and are not intended to make any of our website information a part of this or such other reports.

You may obtain free electronic copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K of us and two of our principal subsidiaries, and amendments to those reports, in the “Investor Relations” section of our website ( ir.lumen.com ) under the heading “FINANCIALS” and subheading “SEC Filings.” These reports are also available on the SEC’s website at www.sec.gov .

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In connection with filing this report, our chief executive officer and chief financial officer made the certifications regarding our financial disclosures required under the Sarbanes-Oxley Act of 2002, and its related regulations.

In addition, during 2021, our chief executive officer certified to the New York Stock Exchange that he was unaware of any violations by us of the New York Stock Exchange’s corporate governance listing standards.

In addition, during 2022, our chief executive officer certified to the New York Stock Exchange that she was unaware of any violations by us of the New York Stock Exchange’s corporate governance listing standards.

As a large complex organization, we are from time to time subject to litigation, disputes, governmental or internal investigations, consent decrees, service outages, security breaches or other adverse events.

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Investors should also be aware that while we do, at various times, answer questions raised by securities analysts, it is against our policy to disclose to them selectively any material non-public information or other confidential information.

Accordingly, investors should not assume that we agree with any statement or report issued by an analyst with respect to our past or projected performance.

Investors should not assume that we agree with any statement or report issued by an analyst with respect to our past or projected performance.

To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

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You should be aware that we have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness.

We have defined methodologies for calculating certain of our statistical data, including route miles, broadband subscribers, broadband-enabled units, on-net buildings and similar metrics.

We may calculate these amounts differently from other industry participants.

Our principal executive offices and telephone number are listed on the cover page of this report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business