Copyright 2016, Faulkner Information Services. All Rights Reserved.
Docid: 00017389
Publication Date: 1608
Report Type: VENDOR
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Level 3 Communications, Inc. is a Fortune 500 company that provides local, national, and global
communications services to enterprise, government, and carrier customers.
Level 3’s comprehensive portfolio of secure, managed solutions includes
fiber and infrastructure solutions; IP-based voice and data
communications; wide-area Ethernet services; video and content
distribution; and data center and cloud-based solutions. Level 3 serves
customers in more than 500 markets in over 60 countries across a global
services platform anchored by owned fiber networks on three continents
and connected by extensive undersea facilities. This report details
Level 3’s recent activity.
Level 3 Communications, Inc. is a Fortune 500 company that provides local, national and global
communications services to enterprise, government and carrier customers.
Level 3’s comprehensive portfolio of secure, managed solutions includes
fiber and infrastructure solutions; IP-based voice and data
communications; wide-area Ethernet services; video and content
distribution; data center and cloud-based solutions. Level 3 serves
customers in more than 500 markets in over 60 countries across a global
services platform anchored by owned fiber networks on three continents
and connected by extensive undersea facilities.
In a major move to strengthen the company’s reach
and influence, on October 31, 2014, Level 3 completed its acquisition of tw
telecom. According to Jeff Storey,
president and CEO of Level 3, "The combination of tw telecom’s rich metro
footprint with Level 3’s global network, positions [Level 3] to provide
local-to-global business solutions and deliver a world-class customer
experience."
History & Milestone Events
Level 3 traces its roots back to the Kiewit Diversified
Group (KDG), a company that offered construction, mining, information, and
communications services. This company was established in Omaha, Nebraska, in 1885
as a wholly owned subsidiary of Peter Kiewit Sons (PKS) to hold its
non-construction-related business assets. KDG was renamed as "Level 3
Communications" in 1998 following a decision by the PKS board to directors
to spin it off as a communications company separate from its construction
operations. The name Level 3 refers to a layered set of protocols used to
describe networks. Other notable events in the company’s history include:
1998 – Began trading on the NASDAQ market
under the symbol "LVLT."
1999 – Opened an international gateway in
London and its international headquarters in Colorado.
2001 – Sold its north Asian undersea cable system, "Tiger," to Telstra
and PCCW joint venture Reach.
2002 – Rolled out broadband communications in seven
European markets allowing it to provide IP and transport services: Geneva,
Madrid, Milan, Stockholm, Zurich, Karslruhe, and Koln … Acquired virtually
all the assets of Genuity in a transaction later approved by federal bankruptcy
court.
2003 – Acquired software distributors CorpSoft and
Software Spectrum … Announced it was exiting its Genuity hosting
business.
2004 – Introduced its residential and toll-free
VoIP offerings.
2005 – Sold its infrastructure management
outsourcing company to Infocrossing … Acquired WilTel Communications … Purchased 360networks’ national long-haul transport business.
2006 – Acquired Progress Telecom, TelCove (formerly
Adelphia Business Solutions), and ICG Communications.
2007 – Completed its purchase of Broadwing, Looking
Glass Networks, SAVVIS’ content-delivery services business, and certain network
assets from AT&T. These particular assets included dark fiber connections to over 200
buildings and 1,600 metro fiber route miles … Completed the first
trans-continental portion of its upgraded Internet2 network.
2008 – Expanded its content-delivery network
services in Asia and Vyxx video-delivery services in Europe.
2009 – Sought US government financial backing, via
stimulus funds, for a rural broadband rollout.
2010 – Ended a "free peering" agreement
with Comcast whereby data could flow across Level 3’s national network, crossing
Comcast’s cable lines to serve end-users.
2011 – Acquired Global Crossing for $3 billion … Lost its dispute with the FCC regarding Comcast’s decision to
impose fees on Level 3 on the grounds of "net neutrality."
2012 – Entered into a multi-year agreement with Time
Warner Cable to provide backbone and infrastructure services.
2013 – Announced the retirement of longtime Chair Walter Scott, who had joined the Board in 1964 and became chair in 1979. He
was succeeded by James Ellis … Named former COO Jeff Storey as
president and CEO … Announced that it resolved its interconnect dispute with
Comcast.
2015 – Completed the acquisition of tw telecom.
2016 – Saw CEO Jeff Storey return to work after an extended
medical leave of absence … Announced a multi-year, settlement-free
interconnection agreement with Google to link their global backbone networks
… Introduced its Enterprise Security Gateway cloud-based network security
solution.
Level 3 caters to its diverse customer base – which
includes enterprises, government entities, research and educational
institutions, and other communications carriers – providing communications
services over its fiber optic network. Its processes and systems are designed to
provide efficient and scalable services via a modern fiber optic network that
deploys Internet Protocol technology. Its value proposition is structured to be
fully aligned with helping these groups meet growth, efficiency, and security
business challenges.
Level 3’s Vision.
The company’s strategy is to be “the trusted
connection to the networked world.” Level 3 seeks to achieve this vision by
focusing on:
Maximizing the value of its network by expanding its
breadth and depth from local to global access.
Delivering exceptional and consistent customer
experiences by innovating to improve the efficiency and scalability of its
operating platform.
Generating profitable growth by focusing on
enterprise customers and layering value-added services onto existing network
and operational capabilities.
Market Drivers.
In addition, Level 3’s core business strategy focuses on
three specific market drivers:
Growth – As globalization trends continue and
as customers look for growth in emerging markets. Level 3 also believes that
additional opportunities for growth exist as a result of changing
regulatory requirements in industries such as healthcare, consumer privacy,
and financial services.
Efficiency – As cloud application adoption
continues to grow, so to does mobility and Internet connected device
proliferation. This causes an increase in the rate at which content is
consumed, resulting in increased demand for higher bandwidth. Level 3 works
to continuously innovate to deliver services that best meet customer needs.
Security – As more customer data and
applications are moved to the cloud, maintaining a secure network and
collection of systems and processes – aka an “ecosystem” – is an
important focus.
Other Objectives.
In addition to these general strategies and core market
drivers, Level 3 also focuses on the following operational and financial
objectives:
Driving revenue growth by increasing sales generated by Core Network
Services.
Growing its Enterprise customer base and share of telecom spending.
Improving the customer experience to increase retention and reduce
churn.
Integrating prior acquisitions, building on the strengths and capabilities of
acquired legacy companies to position itself as "premier global
communications provider."
Rolling out new products and services.
Reducing network cost and operating expenses relative to revenue.
Growing positive cash flow from operations.
Continuing to improve profits as a percentage of revenue.
Concentrating capital expenditures on technology and assets that allow
it to increase Core Network Services revenue.
Managing Wholesale Voice Services for margin contribution.
Strengths
Level 3 believes its core strengths include:
Experienced Management Team – Suited
for business objectives and strategy.
Industry Leadership – Includes "proven track record" among communication
service providers as the first to implement many new
technologies, including global MPLS network, IPV6, VoIP, MPLS, and
converged IP.
Network’s Reach – Includes services in more than 60 countries
worldwide, connecting North America, Latin America, Europe, and
a portion of the Asia-Pacific region.
Communications Services Breadth – Includes Internet and data,
transport, voice and collaboration, collocation and data center,
and value-added services.
Weaknesses
Level 3 believes that it is exposed to a number of potentially limiting
vulnerabilities, among them:
Risks associated with the tw telecom acquisition.
Decreased market prices.
Network capacity constraints.
Majority of revenue attributed to several "key" customers.
Rapid technological changes and competition.
Debt-related restrictions.
Outlook
Level 3 CFO Sunit Patel noted at the time of the company’s fourth quarter
financial results release that "in 2015, we met or exceeded our key outlook
measures for the year. Even with the tw telecom integration, global currency
pressures driven by macroeconomic headwinds and the deconsolidation of our
Venezuelan subsidiary last quarter, we had good momentum which drove revenue
growth and strong profit performance for the year. We also refinanced $4.9
billion of our debt during 2015, resulting in over $110 million of annualized
cash interest expense savings, positioning us well for 2016 and beyond."
For 2016, Level 3 projects both total and Core Network Services year-to-year
revenue growth; interest expense of $770 million; net cash interest expense of
$520 million; and depreciation and amortization of $1.23 billion.
Level 3’s portfolio of products and services includes fiber and infrastructure
solutions; IP-based voice and data communications; wide-area Ethernet services;
video and content distribution; data center and cloud-based solutions.
Table
1 summarizes Level 3’s major offerings.
Table 1. Level 3 Product Lines
Product
Line
Products
Content
Distribution and Performance
Level 3’s
Content Delivery Network supports some of the world’s largest video,
software and web properties with direct connections to major ISPs
and telecommunications companies.
Level 3 is
dedicated to providing customers with 24×7 business continuity.
Thanks to the size and sophistication of Level 3’s global network,
the company has access to a massive amount of security threat data,
enabling greater customer protection.
Business
communication is no longer just phone service. There’s unified
communications, collaboration services, VoIP, SIP trunking and much
more. Level 3 delivers enterprise and wholesale voice services,
contact solutions and a suite of collaboration tools.
Level 3 operates its advanced, international, facilities-based
communications network primarily from its own data centers. As of the end of
2015, this network encompassed:
Approximately 106,000 intercity route miles in North America, Europe,
and Latin America.
Metro fiber network capacity in approximately 350 markets, encompassing
approximately 67,000 route miles.
About eight million square feet of gateway and transmission facilities
in North America, Europe, and Latin America.
More than 360 collocation and data center facilities globally.
Approximately 33,000 route miles of subsea optical fiber cable systems.
The communications industry continues to remain a highly competitive
marketplace. Key US competitors include IP and data services providers such as
Verizon Communications, AT&T, XO, NTT, Tata, and Cogent; transport and fiber
services providers such as AT&T, Verizon, CenturyLink, Zayo, and XO; and voice
services from AT&T, Verizon, CenturyLink, CLECs, and national incumbent
telecommunications carriers.
Other competitors include companies that offer collocation and datacenter
services, including Equinix, Verizon, and CoreSite; CDN service competitors such
as Akamai Technologies, Limelight Networks, Amazon, Verizon, Fastly, and
CDNetworks; security services vendors such as Akamai, Verizon, CenturyLink,
AT&T, and Cloudflare; and enterprise and government market competitors in north
America, including ILECs (such as AT&T, Verizon, and CenturyLink) and CLECs
(such as XO).
Benzinga, a financial news
site, claims that Level 3 is
exploring “strategic alternatives,” a phrase usually associated
with a company beginning to shop around for suitors interested in
a possible acquisition or merger. According to the piece, Level 3
is currently holding internal discussions over options ranging
from a full sale of the company to a large-scale buyback of its
shares. The report also cites an “industry source” that claims Comcast may be interested
in a possible acquisition, should Level 3 decide to take that
route. This belief is apparently based on an ongoing trend at
Comcast to move into the enterprise services market. Both
companies have, so far, remained mum on the report.
(07/13/2016)
Products and Services
Level 3 announced the completion of a pair of network expansions to its hardware in the state of New York. The completed work opens two new fiber sub-loops within the company’s Westchester networking sites. According to the company, this will provide “enterprise customers with access to Level 3’s global product portfolio, additional business continuity disaster recovery (BCDR) services as well as fiber path diversity.” These loops join existing routes running between Tarrytown and Hawthorne, as well as a 5-mile sub-loop through Purchase. The new hardware is capable of speeds up to 100G, and can support Level 3’s full service portfolio, including SIP, security, cloud, and Hybrid WAN. (08/25/2016)
Level 3 signed a contract
extension with the General Services Administration (GSA) on its
Networx Enterprise contract. Under the terms of the agreement,
the company is authorized to bid on and deliver
telecommunications solutions to support the GSA’s “goal of
providing federal agencies access to a broad range of domestic
and international network services.” The document was originally
set to expire in May 2017, but is now good through May 2020.
(06/01/2016)
Customers of Time Warner Cable, Cox Communications, and Comcast located in the
northeastern US suffered a major service outage that began
overnight on Monday, May 9 and was still ongoing as of the
morning of May 10. The downtime impacted subscribers spread
across New York City, New York, as well as several markets in
Massachusetts; Rhode Island, and several other nearby areas.
According to a report from EnGadget, the issue
originate not with the networks of any of the aforementioned
trio, but with Level 3, a
service provider which is heavily integrated into the
northeastern networks of all three companies. Level 3 claims that
the issue was due to “multiple fiber cuts” resulting from third
party construction near one of its facilities. Service
restorations had begun at the time of writing, with some
customers in NYC reporting that they were back online. However,
technicians remained on the scene as of Tuesday morning, with
work to restore the remaining subscribers still ongoing.
(05/10/2016)
Level 3 announced the
expansion of its Cloud Connect Solutions portfolio to include the
Microsoft Azure ExpressRoute for Office 365. According to the
company, this new launch provides its customers with a “private,
secure and reliable network connection to Office 365 that offers
enhanced performance over connections made through the public
Internet.” The new offering fully supports the entire range of
Office 365 services, including Exchange Online, Office web
applications, Skype for Business Online, OneDrive for Business,
and SharePoint.
(03/31/2016)
Level 3 announced that it has
expanded its Ethernet services to a total of 27 locations across
Europe. The company noted that this is the next step in its goal
to provide a “single, ubiquitous Ethernet platform across its
global network.” An additional 15 locations are expected to
launch across the company’s EMEA (Europe, Middle East, and
Africa) before the end of the year.
(03/07/2016)
Level 3 announced the opening
of a new Distributed Denial of Service (DDoS) scrubbing center in
Sao Paulo, Brazil. The firm claims this new location is the first
of its kind in Latin America, and that it represents a new
commitment to providing security to customers in the region. This
is the ninth DDoS scrubbing center for Level 3, with the existing
locations having been limited to the US and Europe. The Sao Paolo
branch is capable of handling more than 4.5 terabits per second
of DDoS ingestion. Level 3 plans to continue expanding its
security solutions into additional markets around the world.
(02/22/2016)
Level 3 announced that it has
signed a contract with the Defense Information Systems Agency
(DISA) for Global Network Services (GNS). The agreement allows
Level 3 to bid on and provide communications services in support
of DISA’s goal of providing a single global network including
both wired and wireless technologies by 2020. Provided services
are expected to include VPN, Internet Services, private line
services, cloud connectivity, colocation services, and much more.
(01/06/2016)
Level 3 announced the formation
of its Global Media Partners Program (GMPP), a “collaboration
comprised of production facilities, teleports and media hubs
connected to Level 3’s Vyvx broadcast network.” The goal of the
new group is to enable customers–including film production
companies, national news organizations and television production
companies–to produce and transmit their video content all over
the world. The program will focus on offering turn-key broadcast
services for televised events, including awards shows, sporting
events, and late-breaking newscasts. Level 3 claims the new
offering will be able to connect broadcasters with more than 500
markets in over 60 countries.
(11/11/2015)
Level 3 announced the launch of
a new offering dubbed “Level 3 Secure Access Cellular Service.”
According to the company, this product “uses both cellular and
security technologies to provide a redundant and scalable option
for Internet connectivity.” The new, carrier-agnostic offering is
designed to continue working no matter what issues may arise with
a customer’s primary Internet connection. It does this by using
“multi-vendor cellular connectivity” to provide customers a
back-up network connection for remote or branch locations, as
well as in the event that a customer’s normal fiber connection is
disrupted. It can also replace MPLS/IP Virtual Private Network
installations in the event of an emergency. The new service is
available now in the US, and will make its way to Europe in the
winter of 2015, and Latin America in the spring of 2016.
(10/20/2015)
Level 3 has witnessed a new
distributed denial of service (DDoS) attack vector that it refers
to as “Portmapper” (also referred to as rpcbind, portmap or RPC
Portmapper), which is a mechanism to which Remote Procedure
Call (RPC) services register in order to allow for calls to be
made to the Internet. When a client is looking to find the
appropriate service, the Portmapper is queried to assist, and the
response size varies wildly depending on which RPC services are
operating on the host. The Portmapper attacks have mostly
targeted gaming, hosting, and Internet infrastructure so far.
Level 3 researchers said in a blog post,
that they “recommend disabling Portmapper along with NFS, NIS
and all other RPC services across the open Internet as a primary
option. In situations where the services must remain live,
firewalling which IP addresses can reach said services and,
subsequently, switching to TCP-only are mitigations to avoid
becoming an unknowing participant in DDoS attacks in the future.”
(08/19/2015)
Alliances and Joint Ventures
Google and Level 3 reached a new
multiple-year, settlement-free interconnection agreement. This
partnership will provide each company with access to the other’s
global backbone network to better meet customer needs. It centers
around the concept of “bit mile balance,” whereby each vendor
will commit to carrying “equitable amounts of bit miles” while
taking into account the amount of – and distance traveled by –
network traffic. Simply put, this agreement delivers traffic to
whichever network is closer to its end users. The companies will
also focus on expanding the number of available interconnection
locations. “This infrastructure investment fundamentally enables
connections to network providers all over the world,” said
Google’s VP of Network Operations Kamran Sistanizadeh. “We
welcome more network providers to work with Google to establish
similar agreements.”
(01/18/2016)
IBM announced the Sports and
Entertainment Global Consortium, a group that will focus on
designing, building, and delivering the “ultimate fan
experience.” This group will bring together IT companies in areas
such as construction and design, network infrastructure,
wireless, and telecommunications. These organizations will work
with various sports venues to offer clients integrated
capabilities spanning design, strategy, technology, and data, and
also commit to developing technology, exchanging intellectual
property, and collaborating to design and deliver global
opportunities. Notable members include Alcatel-Lucent, AT&T, Verizon
Enterprise Solutions, Level
3, Juniper Networks,
and Corning. Within this
group, IBM also announced the formation of a new Sports,
Entertainment and Fan Experience consulting practice.
(11/19/2015)
Level 3 signed an agreement
with Google that makes it possible for customers of the Google
Cloud Platform to directly access Level 3’s CDN (content delivery
network) offerings via CDN Interconnect. According to the
companies, this makes it possible for customers to “to distribute
cloud-based content as close as possible to end users —
increasing speed and quality of delivery, and improving the
overall end-user experience.” The alliance also claims to provide
increased scalability, flexibility in pricing, and increased
security for subscribers. No specific terms for the
interconnection agreement which made this possible were
disclosed.
(09/10/2015)
Personnel and Organizational
Level 3 announced that its
CEO, Jeff Storey, has returned from his medical leave of absence,
resuming all of his duties and responsibilities. The chief exec
took the leave in order to recover from surgery to correct a
recently discovered heart condition. During his absence, the CEO
duties for Level 3 were handled by the company’s Chief Financial
Officer, Sunit Patel, who pulled double duty as both CFO and CEO
during that time. Storey has served as the head of Level 3 since
2013, after taking over from the retiring James Crowe. He has
since overseen Level 3’s high-profile acquisition of tw telecom,
as well as helping the corporation to turn its first annual
profit.
(04/13/2016)
Level 3 announced that its
CEO, Jeff K. Storey, will be taking a medical leave of absence
from the company. The top exec is apparently taking the leave to
recover from “successful surgery for a recently diagnosed heart
condition.” During his absence, which is expected to last
approximately two months, the office will be filled by Sunit S.
Patel, Level 3’s chief financial officer, on an interim basis.
Patel will continue in his existing role as CFO during his tenure
as interim CEO. Storey’s return will not be an abrupt one; he
plans to resume his responsibilities “on a limited basis” when
the two-month recovery period is over. He is expected to make a
full recovery and to resume his full responsibilities in the
future.
(02/25/2016)
Financials
Level 3 posted its second
quarter financials for the 2016 fiscal year. The company’s
revenue for the period reached $1.95 billion, up very slightly
from the $1.94 billion reported a year ago. This resulted in a
net income of $149 million, a vast improvement over the $13
million net loss Level 3 suffered during the year-ago quarter.
Earnings per share followed suit at $0.42, up from the loss per
share of $0.04 reported for the same period in the previous year.
(07/28/2016)
Level 3 published its financial
results for the first quarter of the 2016 fiscal year. The
company’s revenue for the period was $2.05 billion, nearly flat
with the $2.03 billion reported for the year-ago quarter. Net
income for the quarter totaled $124 million, also showing only
slight improvements over the $122 million reported a year ago.
This translated into earnings per share of $0.35, flat with the
previous first quarter.
(04/28/2016)
Level 3 posted its financial
results for the fourth quarter and fiscal year 2015. For the
quarter, revenues totaled $2.05 billion, completely flat with the
same period in the prior year. Net income during the period was
$3.3 billion, or $9.33 per share, reflecting the release of the
company’s valuation allowance against U.S. federal and state
deferred tax assets, and skewing the quarter far ahead of the net
loss of $80 million suffered a year ago. For the year, revenues
totaled $8.22 billion, a slight increase over the 2014 figure of
$8.12 billion. Net income here was $3.43 billion, or $9.71 per
share, including the inflated fourth quarter. This is compared to
the 2014 income total of $149 million, or $0.44 per share.
(02/08/2016)
Level 3 posted its financial
results for the third quarter of the 2015 fiscal year. The
company’s revenue for the period totaled $2.06 billion, up
significantly from the $1.62 billion reported for the same period
in 2014. Despite this, the Level 3 saw a massive drop in net
income, making just $1 million in profits for the period, after
having reported $81 million in net income for the year-ago
quarter. This is due primarily to a year-over-year increase in
operating expenses of nearly $400 million. The drop resulted in
earnings per share being zeroed out, compared to the $0.24
reported for Q2, 2014. On these results, Level 3 updated its
full-year 2015 growth expectations to include a 15 to 17 percent
rise in earnings, up slightly from its previous prediction of a
14 to 17 percent jump. The remainder of the company’s predictions
for the fiscal year remain unchanged.
Brady Hicks is an
editor with Faulkner Information Services. He writes about computer and
networking hardware, software, communications networks and equipment, and the
Internet.
