On Level 3’s Regional Push

June 4th, 2009 by · 6 Comments

Yesterday Brendan posted this question about Level 3 Communications (NYSE:LVLT, news, filings):

I am a LVLT shareholder, and it seems everyday when I check up on their news, they just upgraded an a regional network. What do these upgrades mean, and does it make any difference to a shareholder, or just a better experience to the customer.

This effort to reach mid-sized regional and local enterprises by Level 3 began last month, when they announced the it during their earnings call along with the first markets in the expansion.  I did write this article about it at the time, which still represents most of my thoughts on the subject.  Since then, the company has issued five PRs, one for each market – Washington DC, Colorado, Nashville, Seattle, and upstate New York.  In each they introduced the general manager for the market, listed how many thousands of enterprises their fiber passes in each, and announced an open house.

I haven’t said much in response because there isn’t really much more to say, I’m waiting to see where Level 3 really takes it.  The delegation in decision making from Broomfield to the regional markets should allow the new teams to adapt to local needs and better drive sales, and that should help both customers and shareholders.  However, from the peanut gallery it often feels like things ought to happen as soon as we decide they should.  The reality in the trenches is that this sort of effort takes time to do right and you can’t tell this early if they have.  You can’t just throw a switch and expect a vibrant, locally savvy team to appear nor can you expect the business community to accept it as such.  It appears to me that Level 3 is making the right moves here, but the real effects won’t be visible until 2010 at the earliest.

One thing we might do, however, is speculate on the next batch of markets that they will expand local operations in.  The first bunch included:  1) A top wholesale market with substantial enterprise penetration (Colorado Front Range) 2) Two major wholesale markets where enterprise penetration is far beneath what the assets should be able to support (Seattle, WDC), 3) one mature but somewhat isolated Telcove market with a smaller wholesale presence (Nashville), and 4) a cluster of economically related, similar markets with reasonable penetration  (Upstate NY).  That’s a rather diverse group, but it was chosen because nearly every substantial metro market they have falls under one of those umbrellas and they intend to use the lessons learned in each one when moving to the next of its type.  Therefore, we might look for the next wave by finding similar cases:

  • Upstate NY – other clusters of related, similar markets would be the former Telcove stronghold of Pennsylvania (everything but Philadelphia), the former ICG stronghold of Ohio, and the combined Telcove/Progress footprint in Florida from Orlando south.  Virginia (away from DC) and could fit the bill too.
  • Nashville – there are various more mature enterprise markets like this in Level 3’s footprint where the wholesale segment has far less influence.  Jacksonville, Wichita, and Vermont all spring easily to mind.
  • Colorado Front Range – There aren’t many tier-1 cities where Level 3 has both a big wholesale presence and substantial enterprise penetration, but Philadelphia seems to fit the bill, perhaps New York to a lesser extent.
  • Seattle and Washington DC – Pick any tier-1 market with a big wholesale presence except Philadelphia and Denver and you have a candidate.  Atlanta and Dallas seem likely to me.

As for when they announce the next wave, perhaps as soon as a week or two or three.  You know, just to keep the news flowing…

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Categories: Internet Backbones · Metro fiber

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6 Comments So Far

  • calikid says:

    in the short term, i think you’re going to see expenses rise modestly as lvlt hires people into these five markets ahead of new revenue generation. this may put upward pressure on sg&a, and hurt ebitdas margin. keeping in mind that relationships take time to build, and that enterprise spending has been soft during this economic downturn, it may be a quarter or two before lvlt sees any benefit from this investment. longer term, this is probably the right move as performance in its bmg vertical had been struggling, and this was the best way to address the needs of enterprise customers in these five markets.

    • Rob Powell says:

      I don’t know that they are really ‘hiring’ per se. One could argue that they are moving resources from the center to the rim. It hasn’t been lack of resources to the BMG group that has been the problem, it’s more about the misapplication of the resources they have.

  • CroweLovesTOFU says:

    This is a return to the TelCove model which should not have been broken to begin with. This is Level 3’s far-too-late realization that managing an 8000 node network might be more difficult than managing their old < 100 node network. Storey gets the idea of a regional approach but I doubt that Broomfield could handle a full-blown overhaul of how they do business. Think of it as a move from the United Kingdom to the United States with full irony intended.

  • Brendan says:

    Thanks Rob

  • Dave Rusin says:

    This is all about real, robust demand … Storey is not a speculator …

  • skibare says:

    another year, another layoff
    another year, another reorg
    another year, another dilution
    another year, another set of losses

    Some things just never change, you can move the chess pieces but the 6 billion is just flat out ”’CheckMate”

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