Level 3's Storey says incumbents' wireless focus gives it more enterprise opportunities

Level 3 Communications CEO Jeff Storey has indicated that the strategy by incumbent telcos, namely AT&T (NYSE: T) and Verizon (NYSE: VZ), to increase their focus on their wireless businesses is helping Level 3 win more deals in the enterprise services space.

Speaking at the Morgan Stanley Technology, Media & Telecom Conference, Storey said that despite the emergence of cable operators moving up market, it's the traditional telcos that it continues to compete with.

"The big competitors for us continue to be the incumbents because they are the ones with the customers with the sophisticated networks so those are the companies we see the most in competitive situations," Storey said. "Frankly, a lot of those companies are distracted by wireless so what we've seen is them pulling back from the target customers we have by shrinking their sales organizations so they can become more efficient as the revenues from those markets decline."

Storey added that the incumbent telcos' strategy is unlike Level 3, which is to maintain a direct sales force to strengthen the bond it has with existing and new customers.

"We continue to go in and invest in direct sales people so that we have a direct relationship with that customer," Storey said. "We can go in and fully understand how the customer uses network services, what they are trying to accomplish with their business so we can position our products to help them satisfy their challenges of growth, cost containment and efficiency in their network."

Today, Level 3 is focusing the majority of its sales efforts on upselling existing customers, an approach that was increased when it purchased tw telecom last year.

"Most of our growth comes from existing customers, but that's also part of our strategy," Storey said. "There's some times where we go out and win a great big customer that really hasn't been a logo before like Starbucks from last year."

Evidence of Level 3's customer growth was illustrated in the fourth quarter when it reported that its Core Network Services (CNS) revenues rose to $1.49 billion. Led by data and Internet services growth, enterprise was the key revenue driver in CNS, rising 10 percent to $1.01 billion.

One of the services that's fueling Level 3's enterprise growth is Ethernet.

Interestingly, Level 3 knocked off Verizon (NYSE: VZ) as the second largest Ethernet provider in terms of port share, according to Vertical Systems Group's year-end 2014 Ethernet Leaderboard.

Rosemary Cochran, principal of Vertical Systems Group, said that Level 3's aggressive Ethernet strategy combined with its acquisition of tw telecom helped improve its standing and represents an overall shake-up of the Ethernet services industry via ongoing consolidation of key players.

"Besides their acquisition of tw telecom, which had a solid third position behind AT&T and Verizon, Level 3 moved up ahead of Verizon. This was another major thing because Verizon held the number two position for a long time," Cochran said. "That combined with the assets that tw telecom and Level 3 had pushed Level 3 into second place."

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