Level 3 Nets $700 Million In Dark Fiber Contracts

Level 3 has more than $2 billion in signed contracts this year, providing a steady income for the next 15 to 20 years.

by Jim Wagner of internetnews.com [November 28, 2000]

Level 3 Communications, Inc. announced dark fiber agreements with two telecommunications companies Tuesday totaling $700 million, as it hoped to regain investor confidence.

The contracts with McLeodUSA, Inc. and XO Communications, Inc. give Level 3 more than $2 billion in signed contracts this year, providing a steady income for the next 15 to 20 years.

The company now has signed contracts with more than 45 countries throughout Europe and America during the year 2000.

Services add value to Level 3
As is the case in many fiber installation contracts, companies pay for the fiber as it is installed. Recurring revenues come from the colocation, operations, and maintenance services included in the fiber installation contract. Officials said these services make up approximately 50 percent of the value of the contracts. Kevin O'Hara, Level 3 president and chief operating officer, said the contracts are proof of his company's real value in the industry, in contrast to the opinion of the markets (NASDAQ:LVLT) demonstrated by the company's market capitalization.

"We are pleased that dark fiber and associated services sales have been extremely strong this year," O'Hara said. "We believe these relationships are sources of additional, long-term value creation for both our customers and Level 3.

"In addition, the dark fiber portions of these sales are sources of cash," he continued, "since, while revenue is recognized over the life of the contracts, cash payments are made as fiber segments are delivered to customers. These deliveries generally occur early in the term of the contract, as fiber cable installation is completed."

Ready to rise from the bottom?
Officials are also quick to point out that the company's strong sales this year validate its business model, which has come under intense scrutiny after its stock took a nosedive this March.

Level 3 has seen its stock plummet from the lofty height of more than $132 per share in March to November's low of just under $29 per share.

After reporting a net loss of $903 million in the third quarter, a $607 billion jump from the second quarter, Level 3 Chief Executive Officer James Crowe wrote a letter to shareholders calling for patience.

"We continue to believe that we have the right operational, financial, and technical plans to capitalize on one of the great opportunities in business today," Crowe wrote. "We believe that we have built the most advanced communications network in the world, and, more importantly, one that continues to advance as technology advances."

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