Level 3 Poised as CDN Powerhouse Despite $181M Loss

Level 3 Communications Inc. seems to have made the right decision by adding content delivery network (CDN) services to its portfolio. Even though the carrier remains unprofitable by a long shot, it’s becoming a new media powerhouse as the CDN group consistently tacks on 10 percent or higher growth to the bottom line.

In the first quarter of 2008, CDN contributed $100 million – albeit $5 million less than the previous quarter – to Level 3’s overall sales of $1.09 billion, the company reported on Wednesday.

The wholesale division still provides Level 3’s largest source of revenue – it brought in 57 percent, or $541 million, of Level 3’s sales in the three months ending March 31. The enterprise group followed with 25 percent, or $240 million, in sales; content with 10 percent; and the European markets unit with 8 percent, or $77 million.

“Demand remains strong, especially for content delivery,” said James Crowe, president and CEO of Level 3, in a conference call with analysts.

Indeed, Level 3’s sales were 3.4 percent above the same period a year ago. That news, along with other improved outlooks from the company, helped push the company’s stocks to its biggest gains since July 2002. Shares jumped 22.3 percent, closing at $2.91. That number didn’t come close to the 52-week high of $6.42, but the activity signaled investors’ approval over Level 3’s results.

Of course, that doesn’t mean Wall Street is overlooking the carrier’s continued losses. Level 3 is $181 million in the red; compared to the first quarter 2007 losses of $647 million, though, that’s a vast improvement.

It wasn’t just market demand that boosted Level 3’s sales and, therefore, investors’ confidence. The carrier also, at long last, tackled the installation backlog that had piled up from acquisition after acquisition. Lag times had gotten so long, and orders so lost, that some indirect sales partners stopped working with Level 3. Relief came in the first quarter when Level 3 added resources and started requiring more complete provisioning descriptions, Crowe explained. The problems are mostly – but not completely – fixed, he said.

“There were bottlenecks in our service activation process that we could have and should have prevented,” said Crowe.

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