Tuesday, February 12, 2008

Big Fourth Quarter for L3

Fourth Quarter Financial Highlights for Level3 [via CNNMoney pr]

  1. Consolidated Revenue of $1.10 billion for 4Q07.
  2. Net loss of $91 million.
  3. Positive Free Cash Flow of $41 million.
  4. Total Communications Revenue for 2007 was $4.20 billion.
  5. Core Communications Services revenue, which includes transport and infrastructure, IP and Data, Voice and Vyvx, increased quarter over quarter by 5 percent.
  6. Wholesale Markets Group accounts for 56% of revenue.
  7. Communications cost of revenue for the fourth quarter 2007 increased to $444M ($1.77B for year)

SBC Contract Services increased by 3 percent to $73 million from the previous quarter, and includes a final $16 million quality of service performance bonus. This is the last such bonus for which the company is eligible. As previously disclosed, SBC intends to migrate the services provided under the agreement to its own network facilities in accordance with terms previously negotiated by WilTel, a company subsequently acquired by Level 3. Under the terms of this agreement, SBC agreed to pay WilTel a minimum amount of gross margin regardless of the actual revenue generated under the agreement. The agreement, which continues through 2009, has $36 million in gross margin commitment remaining. [CNNMoney]

This quote is hard to believe considering the amount of email I get from Service Providers asking for quotes to replace (or at least back-up) their Level3 bandwidth:

"During the quarter, we improved our provisioning capability by both increasing resources and through process improvement," said Kevin O'Hara, president and COO of Level 3. "Our customer experience has improved, and we are continuing to make process and organizational changes to further improve our capabilities."

The sentiment I am getting based on the earnings transcript and the 2008 Kick-Off call is that unless you are billing $25K, you should start looking for new collocation. (Call if you need co-lo! 813-963-5884). Rumor is that 80% of the L3 collocation spaces are out of power. So tenants can't add any more equipment. Going forward, power WILL be the bottleneck for collocation, not space or conduit.

While not putting a fixed number on the account, it seems like the $8k to $10k space is where L3 wants monthly billing. So after 2 years and lots of smaller customers being purchased in the mergers, L3 will go back to its "Wholesale Customer Approach". This might work out well for the larger clients, like one of mine billing $1M from L3, who has been waiting months for cabinet vents and cross-connects. Maybe with less clients, they can give better service to the Big Fish. (Or maybe $1M in annual billing isn't a big enough fish.)

Despite the negative buzz swirling around L3 for provisioning, customer support, and IP issues, the Indirect Channel (my side of the house) is headed by a terrific guy who really owns any problems that come his way: Craig Schlagbaum. There are quite a few other people in the Channel that are customer focused, but Craig certainly leads the band. That said, if you need Level3 services, give me a shout, because the one-throat-to-choke is mine and I stand by that.

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