The jury may still be out on its overall revenue growth path, but there have been several items lately that demonstrate that Level 3 Communications (NYSE:LVLT, news, filings) is on offense when it comes to the CDN sector. The latest data point is today's announcement of its expansion in both capacity and reach. They have added 1.65Tbps in total capacity to their CDN capabilities and added nodes in Toronto, Montreal, Hamburg, Brussels, and Munich. They had mentioned in their earnings conference call last week that a large chunk of their higher capex during the quarter went to CDN expansion, and this is obviously what they meant.
They also said during their CC that CDN revenues increased by 11% sequentially during the third quarter, and that in the fourth quarter they will be spending $14M to fulfill a single contract with a large content customer. That's separate from the upgrade announced today, for which the spending occurred in Q3. During the call, an analyst suggested this deal could be related to Time Warner's recent moves, but I don't have any definitive word on whether that is the case. But what matters is the size - CDN contracts aren't usually so big individually to incur such an amount of capex. If it was just an event or some gaming release, it would be charged by the terabit and would be incremental - this one sounds like dedicated infrastructure.
For a division of the size Level 3's CDN business has been reputed to be, these are significant numbers that suggest the company is gaining traction. There have been other such hints this year as well, with wins showing synergies from both Vyvx and the bandwidth business itself. For some time now, the CDN space has been dynamic and yet strangely stable when it comes to marketshare. Akamai rules the roost, while Limelight, Level 3, CDNetworks, and a few others have struggled to break away from each other. Might owning the pipes finally have become relevant?
And on a darker note, even if true has it come early enough to bring Level 3 back from the depths of the last three years? Even if CDN is hot right now, in revenue terms it is still small in the scale of things. Even Akamai is just now reaching $1B in annual revenues.
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