Level 3's Storey: SDN/NFV allow us to better control the customer experience

Level 3 Communications says that software defined networking (SDN) and network functions virtualization (NFV) have become a big part of its network DNA to enable customers to dynamically provision and manage their service experience.

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Speaking during the first-quarter earnings call, Jeff Storey, CEO of Level 3, said like large carriers such as AT&T (NYSE: T) and Verizon (NYSE: VZ), Level 3 is also investing in SDN and NFV.

"With respect to our capex strategy, you mentioned software definable networking and network functions virtualization, those things are very much real in the Level 3 network," Storey said. "We believe very strongly that our customers want to be able to dynamically insert network capabilities on the fly."

Specifically, Level 3 is implementing tw telecom's Constellation product to help customers increase bandwidth on demand capabilities for all of its optical and Ethernet services or the DDoS scrubbing service it debuted in February.

"If you look at the tw telecom Constellation family of products, we are incorporating that dynamic bandwidth capacity in the go-forward product we have for our customers," Storey said. "Whether you are inserting capacity on demand or you're inserting our DDoS protection network on demand, those are the types of SDN and NFV capabilities that we are building into our platform."

As Level 3 continues to bring tw telecom into its fold, Storey said that its customers are seeing various benefits from its acquisition of tw telecom, including new products and an expanded on-net fiber footprint.

At the same time, Storey said that this year will be dedicated to integrating the tw telecom assets into its fold and looking for new cross and upselling opportunities.

"The year 2015 is a transition year for Level 3 and cross selling and upselling is a part of that," Storey said. "Most or our new sales come from existing customers so we'll continue to focus on cross sell and upsell opportunities but believe that 2015 is a transition year where we are putting our sales force through an enormous amount of change and our customers through a fair amount of change."

For the first quarter, Level 3 reported that enterprise revenues rose to $1.4 billion, while wholesale service declined to $547 million. The company's overall Core Network Services (CNS) revenues were $1.93 billion.

From a regional perspective, North America was the dominant leader, rising 7 percent year-over-year to $1.54 billion from $1.4 billion from the same period a year ago. Within the North American region, the service provider reported wholesale and enterprise revenues rose 3 and 9 percent to $438 million and $1.1 billion, respectively. North America makes up 79 percent of all of Level 3's total revenues

In EMEA, revenues declined overall year-over-year 1 percent to $207 million from $228 million from the first quarter of 2014. EMEA wholesale and enterprise service revenues declined 11 and 5 percent to $69 million and $111 million, while UK government business declined 4 percent to $27 million.

Over in Latin America, revenues were $185 million, down year-over-year from $190 million in the first quarter of 2014. Latin America wholesale revenues remained flat at $40 million, while enterprise service revenues declined to $145 million.  

During the first quarter, Level 3 generated net income of $122 million and basic and diluted earnings per share of $0.35 per share. This compared to pro forma net income of $99 million and basic and diluted earnings per share of $0.30 and $0.29, respectively, for the first quarter of 2014.

Looking toward the rest of 2015, the service provider updated its guidance with the expectation of achieving Adjusted EBITDA growth of 14 to 17 percent, up from its previous outlook of 12 to 16 percent.

Overall revenue for the quarter was $2.1 billion, up slightly year-over-year from $2 billion on a pro forma basis from first quarter 2014.

Shares of Level 3 were listed at $55.39, up 73 cents or 1.34 percent, in Wednesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special Report: Wireline telecom earnings in the first quarter of 2015

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