On last week's conference call, Level 3 Communications (NYSE:LVLT, news, filings) described a restructuring effort whose effects have been reverberating throughout the company. As part of it they trimmed 150 people, focused on the director level and above, in their words 'flattening the organization' - never pleasant for those affected of course. Obviously, with the arrival of Jeff Storey as COO and President, there were going to be changes as he puts his stamp on the organization. While it's still early, overall I'm actually impressed by the steps he is taking. Dan Rayburn has a nice post today on the changes to the CDN group and the potential effects for customers of those services. Level 3 is bringing the independently run group closer to the rest of the organization as it transitions from startup to growth mode. But the changes to the Business Markets group go in the exact opposite direction, which is perhaps more important to the company as a whole.
For a long time now, the major complaints against Level 3 that I have heard from ex-employees and others in the sector boil down to 1) too much centralization in decision making, 2) too many VPs, and 3) a tendency to reshuffle them and call it progress. While such criticisms aren't that uncommon from those who have left (voluntarily or not) any organization, these themes have been very stable over time. I find it very interesting how directly the new COO has addressed those concerns. Obviously, cutting executive manpower is part of that, but I'm even more interested in the decentralization. They are pulling all the national accounts together into one organization, which is actually not the news. The news is that the rest of the accounts will no longer be run by a team focused on national accounts that could care less about smaller deals.
Level 3 has a huge metro footprint, but while they leverage it well for national accounts, the competition has of late done a far better job of applying local knowledge to gain local sales. That's how metro fiber specialists like TW Telecom (NASDAQ:TWTC, news, filings), abvt, RCN Metro and the many smaller players have been generating solid growth on growing margins despite the economic turmoil. It's how Telcove did the same before Level 3 acquired them. The reason is that those companies ensure that decision making is sufficiently distributed, that those who know the markets well have the power to serve those them properly with fewer edicts from above. Level 3's approach since assembling its impressive list of metro assets has been much more top-down, and while it has done well for larger national accounts it has frankly just not panned out at the local level. They have been completely missing out on the growth that other metro fiber providers have seen over the last few years. They have been losing deals they could have won and churning customers they should have kept. This reorganization appears to deliberately shift some of that decision making power back out of Broomfield and into those regional and local markets.
Sounds obvious, but if they really mean it then it will be a seismic shift in the way Level 3 operates. Only one geographical area has ever been operated with much local independence by the company: Europe. It's not an accident that this is also the most vibrant piece of the company nowadays.
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