Level 3's Storey: 100,000 new opportunities are within its network reach

Level 3 Communications (Nasdaq: LVLT) wants to get back to 2 percent quarter over quarter growth and thinks it has a sound plan to bounce back after various quarters of disappointing results.  

Speaking during the Goldman Sachs Global Investment Research Communacopia XIX Conference, Jeff Storey, president and chief operating officer of Level 3, said it is being opportunistic with its network growth strategy.

The service provider's metro fiber network investments are centered on a "smart build" approach that that takes into consideration various opportunities (wireless backhaul, enterprise, cable operators, etc) that exist in a particular metro area.

Currently, Level 3 has 8,000 buildings on net, but it estimates there are 100,000 buildings that are about 500 feet away from its network facilities. In 2010, Level 3 plans to expand its fiber facilities into 200 additional locations to meet data center needs, federal government and wireless backhaul.

"We want to continue to work and bring those buildings on net," Storey said. "We're in a unique position because we can leverage wholesale, enterprise (both large and mid-market enterprise), wireless customers, content providers and look at all of their demand sets and route our fiber accordingly to pick up as many of those demand sets as possible."

Storey added that while there is a lot of talk about wireless backhaul, Level 3 believes it's just one of many targets it can shoot at with its network. "We're not just looking at wireless backhaul as a standalone, but rather as we go to a content customer can we pick up a cell site or a large enterprise customer?" Storey said.  

No less important to Level 3 is advancing its data center capabilities. Level 3 has set aside $100 million to expand its data center capabilities.

With about 7 million feet of data center space, two million of which is dedicated to customer use, the majority of the network investment in 2010 will focus on cooling and power in these centers versus expanding space.

During the second quarter earnings call, Level 3 outlined a strategic review of its data center business, but Storey said that centers on how it should invest in the business segment.

The data center investments are "not likely to be space but more likely to be power density and building out more power in existing data centers and the cooling requirements that go with that," Storey said. "Those are typically in large metro areas where people want data center services. We have 210 data centers and that $100 million could be spent on 50 of them that are attractive for investment and need investment."

Of course, the other question is what is Level 3's merger and acquisition strategy? In the earlier part of this century, Level 3 seemed to be set on an acquisition binge, acquiring the assets of the former Broadwing, Genuity, Progress Telecom, TelCove and WilTel.

And despite rumors last year that it was one of the possible bidders for Qwest's long-haul fiber network-a rumor that was crushed long before CenturyLink swooped in with its own deal to acquire the company-Level 3 has remained quiet on the M&A front.

While Storey admitted that Level 3 has stayed out of the long haul network M&A cycle for a while, the service provider is not ruling out future deals either and recognizes there could be potential deals that are synergistic with its own strategy and network footprint.

"When we look at our company, we acquired Genuity way back in 2002, then we acquired WilTel in 2005, Broadwing and a number of other companies along the same timeline and we captured the synergies," he said. "We stepped out of it for a couple of years because of very well publicized operational problems we had in 2007 and 2008."

With much of those operational problems behind them, Storey said that while he would not identify any specific deals, they "are very actively looking at acquisitions," While Level 3 says that they are willing to put up the money for the right asset, they want to ensure that the "terms are right and if we look at carving out a business of a larger entity we want to make sure the company we are carving out has some skin in the game."

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