Yesterday, Level 3 Communications (NYSE:LVLT, news, filings) made good on its promises and announced it has applied for broadband stimulus funds in the amount of $15M in grant funds and $5M in matching funds. The target of course is the 'middle mile', which has been one of the industry's favorite terms in the last two quarters. Level 3 would use the funds to bring middle mile bandwidth to some 50 underserved markets. Those 50 markets would primarily be in or adjacent to places where Level 3's fiber goes but doesn't currently have on-off ramps, i.e. those many huts in the middle of nowhere.
My first thought on reading this press release was "who's the partner?", since I thought that most bids for middle mile money would have a last mile partner. But it seems that Level 3 is going solo at least for this bid. They probably have clients in mind though, some of whom are likely also applying for funds like Open Range. But why not bundle its bids into one package rather than be part of dozens of other bids - it makes sense. At least it will if it works. With the large ILECs passing on the first round, it stands to reason that folks like Level 3 who don't have a consumer segment and therefore fewer hangups about network neutrality stand to take advantage.
Now, $15-20M isn't exactly a huge number, it's not going to set the sector on fire. But Level 3 can use whatever capex grants it can get these days as it aggressively pushes for positive free cash flow amidst substantial revenue pressure. The prospect of entering 50 new markets without spending its own cash is certainly attractive, especially markets where their presence would be fairly unique and the revenues therefore sticky. The bid has a tactical flavor: small enough to be easy to approve, but just big enough to be quite relevant.
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