Level 3 was founded in 1985 as Kiewit Diversified Group, Inc. (KDG), a wholly-owned subsidiary of Peter Kiewit Sons’, Inc. (PKS), a construction, mining, information services and communications company headquartered in Omaha, Nebraska. When KDG was established as an independent business with the name Level 3 and a NASDAQ listing in 1998, the carrier began construction of a new fiber optic network, including long-haul, international and metropolitan area components. That network was completed in 2001. (Note: This Company Assessment covers Level 3’s Enterprise Services. For an overview of Level 3’s Wholesale services, please see Level 3 – WTS.)
Level 3 has expanded its business through a number of strategic acquisitions including Genuity in 2003 and WilTel in 2005. In 2006, Level 3 completed its acquisitions of Progress Telecom, ICG Communications, Telcove, and Looking Glass Networks. In January 2007, the company completed the acquisition of Broadwing, and of the content delivery business of SAVVIS. Level 3’s leading customers include the four largest ISPs, the six largest cable MSOs and four RBOCs, as well as cellular providers, PTTs, satellite companies, system integrators, and more than 30 government agencies.
Level 3 is not profitable. The company lost $638 million on $3.6 billion in revenue in 2005, and had negative cash flow of $425 million. For Q3 2006, Level 3 posted consolidated revenues of $875 million, of which $544 million was core communications revenue that included the acquisitions of ICG Communications, TelCove, and Looking Glass. The quarter saw particularly strong growth over the previous quarter in Level 3’s transport and infrastructure (up 31%) and voice (up 43%) businesses, and a slight increase in communications gross margin to 57%, in part due to the addition of these higher-margin metro business service providers. The carrier continues to report revenues as Core Communications, Other (Managed Modem), and SBC Contract Services. Level 3’s Q3 2006 revenues excluded results from its Software Spectrum subsidiary, which Level 3 sold to help finance its acquisitions.
Level 3’s North American local facilities are made up of fiber optic networks that connect its inter-city network points of presence (PoPs) to ILEC and CLEC central offices, long-distance carrier PoPs, buildings housing Level 3’s target customers, and Internet peering and transit facilities. The fiber infrastructure was designed using multiple conduits to allow Level 3 to deploy newer generations of fiber and networking components As a result of multiple acquisitions since 2005, Level 3 now operates a 38,600 route-mile inter-city fiber optic network, including 35,000 route miles in the U.S. and 3,600 route-miles in Europe.
The carrier operates metro fiber networks in 110 U.S. and nine European cities. Broadwing contributes more than 20,000 fiber route miles reaching 137 U.S. cities, and metro fiber in nine domestic markets. The integration plan is to shut down redundant routes and eliminate duplicate facilities where possible, except when the ability to provide diverse routing is advantageous. Level 3’s European networks include a dual ring 10 Gbps backbone spanning 3,600 intercity miles and interconnecting 23 cities, as well as metro networks in nine European cities. To link North America with Europe, Level 3 maintains diverse transatlantic links across a number of cable systems including the Yellow submarine cable system from New York to the UK , Atlantic Crossing-1, Apollo, and TAT-14. In response to rising traffic volumes, the company recently added to its submarine capacity by purchasing an additional 300 Gbps on Apollo. Level 3’s network traffic is divided into four main types: transport and infrastructure, IP and data, voice and VoIP, and managed modem (dial-up). The company is a Tier 1 Internet backbone provider, transporting large volumes of IP traffic between gateways located in North America, Western Europe, and Eastern Europe . Level 3 also gained WilTel’s Asian submarine leases and landing stations in California.