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Level 3 Communications Overview

Discover the history, products, strengths, weaknesses, opportunities, and threats of Level 3 Communications since its inception in 1985 and its position in the global market.

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Level 3 Communications Overview

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  1. Nargiz Umayeva Kevin Port Torrey DiCiro Remy Magnier Anthony Li

  2. BEGINNING OF LEVEL 3 • Roots as Kiewit Diversified Group (1985) • Construction • Coal Mining • Pennsylvania CLEC • Hired James Crowe from World Com • CEO, COO, and Exec-VP team all departed

  3. 1997 WITH JAMES CROWE • 4 years as CEO of MFS Communications (CLEC) • Bought UUNet early in the year to make one of the largest Internet Service Providers • Later in the year, acquired by WorldCom • Subsequent culture clash with WorldCom, then departure to Kiewit.

  4. 1998 TO PRESENT • KDG agreed with business model – Spun off communications division– Level 3 stock • Built IP network from scratch in two years – US, Asia, Europe • Currently #9 World bandwidth provider. • UUNet still #1 – Crowe credited for outstanding vision

  5. PRODUCTS • Data Transport & VPN • VoIP innovator on all IP network • Consulting – E-commerce – Web Hosting • Co–Location Facilities (3 million sf) • Managed Dial-up • Dark Fiber Sales

  6. STRENGTHS • No circuit switching infrastructure • Construction affiliate • Experienced Management Team • Targets High bandwidth consumers • Expandable network • Funded for construction for current network plans • Largest Revenue Growth in Segment (120%)

  7. WEAKNESS • Reliant of VoIP new technology • Reliant on growth of last mile baseband • (1.46), (4.36), (6.76), (6.39), (4.98), (2.19) 99 00 01 02 03 04 • Price Wars to gain Market Share • Future equipment cost uncertain

  8. OPPORTUNITIES • 300x Increase in bandwidth demand – 8 years • DSL, Cable, LMDS, MMDS • Napster • Video-on-Demand • Video Conferencing • First Mover in Co-location facilities • Dark Fiber sales can increase cash flow

  9. THREATS • Mergers or Aquisitions • Price Wars to gain Market Share • Other entrance to market

  10. Company Market Cap. Cap. Change YTD Net PP&E Adj. Revenue Y/Y Sales Growth Colocation Space (sf) Total Cash Current Ratio Global Crossing 12.454B -65% 7.909B 1.226B 39% None found 2,295M 0.85 Level 3 11.428B -54% 7.042B 0.234B 120.8% 3 million 6,405M 3.61 360 Networks 10.579B -28% since IPO 2.454B 0.158B 94.8% Planned 1,529M 2.09 Williams Comm. Group 6.375B -52% 3.511B 0.515B 3.23% 2 million 327.8M 1.22 COMPETITION

  11. GLOBAL CROSSING • 101,000 route miles, serving more than five continents, 27 countries, and over 200 cities • Began life in 1997, laying undersea cables • Exploring new frontiers • Ixnet • IPC • GlobalCenter

  12. Williams Communications Group(WCG) • 33,000 route miles by year-end • Business Structure • Network • Solutions • Strategic Investments • Financial strength questionable • Inexperienced Management

  13. 360 Networks (TSIX) • Formerly known as Worldwide Fiber • Began life in 1987 as the telecom division of Ledcor Industries • By the middle of 2002, fiber optic network will measure approximately 88,000 miles • Vision drives their business strategy

  14. TECHNOLOGY Comparison of IP-over-ATM and IP-over-SONET • Interconnecting faster the ISPs backbones routers • SONET is a physical layer technology • SONET ring provides point-to-point connections between routers through the use of PPP • ATM as a link layer technology, connection-oriented transport mechanism • IP-over-ATM: ATM as the underlying data transport technology while still using existing IP applications

  15. IP-over-ATM vs. SONET • Protocol Overheads ATM < SONET • Bandwidth Management ATM > SONET • Quality of Service ATM > SONET • Addressing & Routing ATM > SONET • Flow Control ATM > SONET • Multiprotocol Encapsulation ATM = SONET • Fault Tolerance ATM = SONET

  16. IP-over-ATM vs. SONET • IP is rapidly becoming the network layer technology of choice for building packet networks • SONET is being widely deployed by carriers and is likely to be the physical infrastructure for interconnecting routers over the wide-area network • SpeedIP-over-SONET • Flexibility in bandwidth management, quality of service and network engineering is importantIP-over-ATM • Will it be ATM or PPP between IP and SONET?

  17. DEMAND SCENARIOS • Prices fall • Cable and DSL overcome the last mile • LMDS and MMDS overcome the lack of copper infrastructure • 1% Price droprevenue or demand will increase by 2% because of highly fixed and low variable costs (Deutsche Bank) • CNET forecasts a 300-fold increase in demand of bandwidth by 2010

  18. DEPLOYMENT SCENARIOS • ISP backbones IP/SONET & IP/ATM • Corporate intranets IP/ATM • Campus backbones TAXI, STP, UTP Cat-5 & IP/ATM • Carrier networks IP/SONET, ATM/SONET, IP/ATM

  19. STRATEGY • Price policy • Crossroads' model: keeping as much traffic on Level(3)'s network gives a 20% fees reduction • DSB: Destination Sensitive Billing • Level(3) #1 for the wholesale market (ISP) • Lower prices to gain market share and satisfy the investment community

  20. STRATEGY • Bandwidth builders cooperation • High-cost construction: share the costs and risks • Co-digging • Duct sharing • Facilities sharing • Save time, crucial in Europe’s booming Net market

  21. STRATEGY • Focus on dark fiber deals • Expanding via internal efforts rather than through M&A • Structural excess of capacity (10 to 12 pipes) • The CoreExpress deal(extranet services provider) • Level(3) fiber as its national backbone network • 20-year deal to use the 23,000 miles of fiber • Cost of lighting its own equipment < leasing

  22. STRATEGY • The move to packet • Marketing tool • World’s first end-to-end network for IP technology • Packet switching technology allows multiple transmissions to share the same line • More information to be transmitted at the same time • At a far lower cost than traditional circuit switch

  23. STRATEGY • Preserved from M&A • Leases much of its network from other carriers • Small number of customers (wholesale model) • Wholesale emphasis brings customers to them • Rather than forcing them to “purchase customers” through M&A

  24. CONCLUSION • Broad array of products will increase customer switching costs • Competitors are following same strategy • Wholesale model enables to gain market share faster than competitors and satisfy the investors

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