In an SEC filing today, Level 3 Communications (NYSE:LVLT, news, filings) announced a major new contract with a 'major multinational customer' whose name they can't tell us. The contract, apparently signed June 4, has a 20 year term and a minimum commitment of $140M in the first four years - that's pretty substantial as contracts go. In the hours since the filing, I have been peppered with emails asking for comment on a) who it might be, and b) what it might be for. Now, I have no inside information on the subject, but since I've never let that slow me down before here are some brief thoughts:
- What's it for? One doesn't sign a 20 year contract unless its for long term infrastructure. Other services, like voice or IP transit or CDN, have markets that are too dynamic. They might be part of the overall package, but the core of the deal is likely about fiber and raw transport on a nationwide basis. Given how longhaul capacity is a commodity these days, this is probably all about metro access nationwide for someone needing to build out a network ASAP - i.e. wireless backhaul.
- Who could it be? A long term infrastructure deal like this seems to be is likely to come from someone who feels that it isn't likely to find favorable deals with Verizon (NYSE:VZ, news, filings) or AT&T (NYSE:T, news, filings), i.e. working with them long term may be strategically flawed.
- Is it Sprint? It's possible, but only if the rumors of joint venture discussions were wrong or rather late. It would imply that the 'network sharing' discussions came first and were already fruitful, and that the JV idea came afterward and the sources the WSJ depended on were clueless. Possible? Yes. But I actually doubt it happened that way.
- If not Sprint, then who? My immediate guess would be a wireless carrier with major nationwide 3G and 4backhaul needs and no ILEC to supply it. In other words, probably T-Mobile but in theory it could also be Clearwire I guess.
- Is this a huge deal for Level 3? It very well might be. On the other hand, it is possible that the customer is already spending this much money ($35M/year) with Level 3, and that this simply writes existing revenue into a new contract vehicle. Frankly, it's most likely somewhere in between.
We won't be able to tell the real impact of this deal until we see actual revenue growth result from it. But of course, any big contract win at Level 3 is a good thing for them these days.
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