Jump to content

Level 3 on the right track?


Cardboard

Recommended Posts

Guest longinvestor

 

IMO, Level 3 should get a piece of this action. If their revenues were to double over that period, which seems quite conservative based on the data above and the fact that pricing is stable, .................. close to an inflection point on profitability or sometime in the next 12 months, so I agree with Southeastern on the 2010-2011 time frame.

 

Cardboard

 

I think the long term prospects are good for LVLT from here, however, I would not be looking for revenue to double in 5 years. Having watched this company for, er.... a while, winning for them is just keeping a seat at the table for the long term, say 2020. Which means postponing their debt burden while the industry consolidates. They are doing a good job at this. SEAM and Prem seem to be willing to provide the capital along the way. Some growth is going to be captured but explosive growth has not been a LVLT strength. Would be nice, but I am mentally prepared to see a return only after a while with LVLT. I do think that $1.30 is a good entry point.

Link to comment
Share on other sites

From what I understand, over the past decade their network utilization never hit prior forecasts due to disruptive technologies like Akamai's.  Instead of an end user from Mountain View California getting data from a server in New York, the data for the end user comes from a server in San Jose that had locally cached the New York servers' data.

 

Is that a fair summary of why the explosive growth never happened?  Apologies if that's too oversimplistic -- I'd rather like somebody to give me a better explanation if one exists.

Link to comment
Share on other sites

I think the Level 3 story is fascinating, if not profitable :).

 

What do you think is the explanation for why network utilization has increased exponentially, but revenues have not increased at all?  The answer might be "because prices have fallen faster than utilization has increased", but again, why is that?

 

Is it the Akamai effect? Or are Level 3 customers choosing to build out their own networks instead of leasing from Level 3 when their demand grows?

 

IMHO the answer to this question determines the investment case for Level 3.  Network utilization is again projected to grow exponentially over the next 5 years, why will revenues grow this time even though they didn't over the past 5?

Link to comment
Share on other sites

I think the Akamai effect will be a short-lived one.  Akamai is good at handling small packets and short contents.  Long video content is a totally different animal that requires lots of fiber.  So, whether one wants to take on debt to duplicate the network scale of LVLT or lease from LVLT, fiber still has an economics advantage in the long run.

 

In the next 5 years, 4G services will also be a drain on the telco guys.  Notice all of the caps that T and VZ are putting on their data users these days.  So as more people switching to smartphones(Androids, iPhones, WinCE, RIM, and Palm), there will be more demand for fiber.  Can Akamai handle those wireless traffic?  I think not.  Not only that, later this year the cable guys like Cox, TW, and Comcast will offer their own 4G services.  So, I think someone who owns the network like LVLT is a sweet spot.

 

BTW: Speaking of Akamai, this is a few months old, but this is important for LVLT's CDN division:

 

http://www.businessinsider.com/akamai-loses-some-hulu-traffic-to-level-3-and-limelight-networks-2010-3

 

Dan Rayburn is a good industry veteran worth following if you are going to learn about the CDN business. 

Link to comment
Share on other sites

Well over the past ~5 years, Verizon, Cox, and Comcast (not to mention other smaller cable companies) have built out their fiber networks to support delivering video over fiber.  Verizon's service provides fiber right to the home.  This is exactly the use case that is supposed to be addressed by Level 3's network, so why didn't this result in a bonanza for Level 3?

 

I'm not asking this rhetorically and I really don't know the answer.  Surely there is cap ex being spent on these networks, and those dollars aren't going to Level 3.  Is it because these companies don't want to give up control of their networks and would rather directly incur the cost of building them out even if it is much more expensive than leasing from Level 3?

Link to comment
Share on other sites

Guest longinvestor

Well over the past ~5 years, Verizon, Cox, and Comcast (not to mention other smaller cable companies) have built out their fiber networks to support delivering video over fiber.  Verizon's service provides fiber right to the home.  This is exactly the use case that is supposed to be addressed by Level 3's network, so why didn't this result in a bonanza for Level 3?

 

I'm not asking this rhetorically and I really don't know the answer.  Surely there is cap ex being spent on these networks, and those dollars aren't going to Level 3.  Is it because these companies don't want to give up control of their networks and would rather directly incur the cost of building them out even if it is much more expensive than leasing from Level 3?

 

Why has LVLT has not cashed in on increased network usage by T, VZ, Sprint et al.?  I believe that the regulatory regime in the form of FCC has much to do with this.

The landline business has fundamentally changed forever with the emergence of VOIP. LVLT does carry much of the “new” traffic of the disruptive (to incumbents) players like Skype, Vonage, Comcast digital etc. It is not surprising at all to hear that Sprint would like to strike a deal with someone like LVLT to take over all of the landline bit traffic....because the much feared "$10 per month" telephone bills is not a threat but reality, today.

The wireless phone biz, one would argue got a lot of tailwind from a very favorable FCC of the Bush years which basically concluded that the level of competitiveness in the marketplace was sufficient to  warrant any intervention…huh. Stunning, as a cell phone customer I never felt that with two year contracts, penalties, overages, device control in the hands of the provider etc.  The stunning reversal of the telecom deregulation of the 1980's we witnessed over the past 5 years (the re-merging of the RBOCS into VZ and T) was a gift of the Bush-FCC years to the incumbents.  This has certainly been headwind for LVLT’s biz model.

Should the current FCC pry open the wireless market, competitiveness will drive prices down, really forcing the hand of VZ, T to look at the cost of driving bits thru their pipes. Imagine VZ and T see their wireless revenues cut in half or more! Buy versus Make will become an imperative. Precisely why Sprint is considering this as the weaker player. 

It is not hard to foresee the convergence of all things into IP-transport. This is already underway. What regulation has done (or not done) is let pricing be controlled by the providers of mobile services such as a cell phone, PDA’s or laptops etc. If mobile communication goes the way of fixed wire line biz where real competitiveness is in play, the day of LVLT’s promise will have dawned.  As always, regulations change slowly, especially with 100-year (telecom) and 50-year (cable) monopolies in the midst. Interestingly the cables and telecom are going for each others’ throats in this zero sum game driven by declining disposable incomes. 

Why I believe LVLT is a long term bet. It is important that they preserve the low cost provider game AND keep a seat at the table for as long as it takes for all of this to come to fruition. You have to believe that it is WHEN not IF when it comes to an investment in LVLT. And the mental problem one has to overcome with LVLT is to forget about the past 10 years. Very difficult to do if you bought LVLT at $5 and up….er….upto $132 some 5-10 years ago. Why this is such a hated stock. Or belong in the "too hard" pile for value investors. Time will tell.

 

Link to comment
Share on other sites

"Well over the past ~5 years, Verizon, Cox, and Comcast (not to mention other smaller cable companies) have built out their fiber networks to support delivering video over fiber.  Verizon's service provides fiber right to the home.  This is exactly the use case that is supposed to be addressed by Level 3's network, so why didn't this result in a bonanza for Level 3?"

 

I think you might have missed a few of LVLT's comments on the buildout of Cox and Comcast using their lambda.  LVLT management has maintained that they needed a Comcast and a Cox to push into the local market.  They have ceded local push to the cable guys.  Even as LVLT sells Cox and Comcast wavelength for their local push, these guys are still LVLT's top 10 customers.  They haven't abandoned LVLT.  As for VZ, let's talk about that, shall we?  Back in 2007, VZ pledged $23 BIL for FIOS for the local market.  Now, compare that to the $25BIL for LVLT's nationwide network.  That's a huge amount of money to connect only 18 mil homes.  As of Q1, VZ has managed to grab 3 mil FiOS TV subscribers and 3.7 FiOS data sub.  While they are having growth in both areas, their growth have dropped dramatically since the roll-out.  So, the question is: is $23 BIL worth the investment for those 3mil users?  Even with the $23 BIL investment and counting, VZ are still relying on LVLT's network.  Here is the list of LVLT's customers - Slide 10:

 

http://lvlt.client.shareholder.com/common/download/download.cfm?companyid=LVLT&fileid=376699&filekey=66e00665-eed9-4fde-95ec-2661d561ce98&filename=Barclays 2010 TMT Conference_052710.pdf

 

So, those dollars are finding their ways to LVLT; they just don't come fast enough

 

Link to comment
Share on other sites

I think the Akamai effect will be a short-lived one.  Akamai is good at handling small packets and short contents.  Long video content is a totally different animal that requires lots of fiber.  So, whether one wants to take on debt to duplicate the network scale of LVLT or lease from LVLT, fiber still has an economics advantage in the long run.

 

I have to disagree with your assessment of Akamai.  Not the company, but the technology in general.  The company itself I believe has a very small moat, but in general the technology involved isn't so much about size of the data as it is about the repetition of the data. It's not that the video content is longer or larger, but that the content itself is mostly on the long-tail side of things.  Sure, it'd be great for those video clips that are being watched by everyone a ton, but Akamai isn't going to help much with reading your email, since it's (hopefully for you) not being read by tons of people. 

Link to comment
Share on other sites

I think you might have missed a few of LVLT's comments on the buildout of Cox and Comcast using their lambda.  LVLT management has maintained that they needed a Comcast and a Cox to push into the local market.  They have ceded local push to the cable guys.  Even as LVLT sells Cox and Comcast wavelength for their local push, these guys are still LVLT's top 10 customers.  They haven't abandoned LVLT.

 

It is true that I am a bit out of touch with the "story" as I have not been following them as closely as I was 5 years ago.  However, the story hasn't changed much :).  They're still waiting for that time when demand will outstrip supply.

 

To put my question another way, if Level 3's top 10 customers are growing in terms of network buildout and utilization, why aren't Level 3's revenues growing?

 

Back in 2007, VZ pledged $23 BIL for FIOS for the local market.  Now, compare that to the $25BIL for LVLT's nationwide network.  That's a huge amount of money to connect only 18 mil homes.  As of Q1, VZ has managed to grab 3 mil FiOS TV subscribers and 3.7 FiOS data sub.  While they are having growth in both areas, their growth have dropped dramatically since the roll-out.  So, the question is: is $23 BIL worth the investment for those 3mil users?  Even with the $23 BIL investment and counting, VZ are still relying on LVLT's network.

 

I was with you until the last statement.  Verizon is clearly intending on building out their own network despite the fact that LVLT already has one.  This is one of my points -- the major players are choosing to build instead of buy in terms of their network, even though LVLT insists that it would be more economic for them to buy network capacity from them.  You might say that it doesn't "make sense" for VZ to spend $23B on their own network, but that is exactly what they're doing, so it makes sense to them, and it demonstrates that large companies are not compelled to buy capacity from LVLT.

 

Link to comment
Share on other sites

"It's not that the video content is longer or larger, but that the content itself is mostly on the long-tail side of things.  Sure, it'd be great for those video clips that are being watched by everyone a ton, but Akamai isn't going to help much with reading your email, since it's (hopefully for you) not being read by tons of people."

 

rmitz, I am very confused by your statements above.  On one hand, you say that AKAM has a small moat.  On the other hand, you say that "content itself is mostly on the long-tail side of things".  Can you elaborate?  At the end of the day, I think it is much more valuable to be the owner of a network than an owner of a ton of servers that depreciate a lot faster than fiber.

 

"To put my question another way, if Level 3's top 10 customers are growing in terms of network buildout and utilization, why aren't Level 3's revenues growing?"  I am one not making any excuses for LVLT's management here, but you can pin down their revenue growth problems to a host of problems.  I believe longinvestor addressed part of the issues for you, and that is the FCC.  The FCC itself has enabled the RBOCs to become two behemoth Ma-Bells all over again during the Bush-business friendly era.  So, when LVLT became a consolidator a few years ago by buying up 7 businesses, they got caught off guard by the RBOCs merging to bring traffic back onto their own network i.e. AT&T and VZ.  AT&T moved the Cingular and SBC traffic back onto their network, and VZ moved the Alltel(remember these guys?) and VZ Wireless onto the MCI network.  Combining that with their missed execution on the mergers, they got troubles brewing.  Compounding to that problem was the credit squeeze, and LVLT was knocked against the rope.  So, 5 years go by really fast, and that's what you have missed the last 5 years.

 

Now, regarding your statement, tiddman, on you were with me until the last statement.  If you look at the link that I sent you, you will see that VZ still uses LVLT to carry its traffic even though they have their own $23BIL FiOS network.  That was my point.

 

"Verizon is clearly intending on building out their own network despite the fact that LVLT already has one."  Correction to your statement.  It's more like VZ bought the MCI/Worldcom network, and then build the FiOS network to push into the local markets.  Even that they built their network, they are relying on LVLT to carry their long-haul traffic.  Again look at the slide #10 in the link that I sent you. 

 

Just ask yourself why is it that AT&T are putting caps on their wireless users?  If that wasn't caused by overwhelming demand of the smartphone users, what caused the network overloading and the cap on bandwidth usage?  Yet, T thinks that this will be good for the consumers?  They are sadly mistaken!

Link to comment
Share on other sites

"It's not that the video content is longer or larger, but that the content itself is mostly on the long-tail side of things.  Sure, it'd be great for those video clips that are being watched by everyone a ton, but Akamai isn't going to help much with reading your email, since it's (hopefully for you) not being read by tons of people."

 

rmitz, I am very confused by your statements above.  On one hand, you say that AKAM has a small moat.  On the other hand, you say that "content itself is mostly on the long-tail side of things".  Can you elaborate?  At the end of the day, I think it is much more valuable to be the owner of a network than an owner of a ton of servers that depreciate a lot faster than fiber.

 

My meaning was that a lot of the content itself is not duplicated.  On youtube, for example, a lot of bandwidth gets used up by videos only watched a few times...but there are many of those videos.  Akamai is most valuable for people with content that gets viewed lots of times in lots of places.  hulu is an example of exactly this opposite effect, where akamai would be helpful.  The "long tail" phrase does not refer to the business of akamai at all.

 

Link to comment
Share on other sites

The FCC itself has enabled the RBOCs to become two behemoth Ma-Bells all over again during the Bush-business friendly era.

 

Well LVLT can blame the FCC or President Bush, but it's a competitive marketplace, and if they had had a product that was as compelling as they had claimed, customers would have chosen it instead of re-consolidating themselves.  This is one of my questions -- why are customers choosing to build instead of buy from LVLT?  I think this answer is needed to understand LVLT's competitive position.

 

Is it because LVLT's services are too expensive? Or not in the right places? Or customers don't want to give up control of their network resources?  Something else?

 

If you look at the link that I sent you, you will see that VZ still uses LVLT to carry its traffic even though they have their own $23BIL FiOS network.  That was my point.

 

Yes Verizon is a customer of LVLT.  All this slide shows is that VZ provides LVLT some revenue.  What % of LVLT's business is from VZ, and what % of VZ's network is hosted at LVLT?  I suspect both answers are in the 5-10% range.  It makes sense that VZ would build out the majority of their own network but use LVLT and other providers to fill in gaps or provide certain routes.  I would guess that a vast majority of VZ's network is not on LVLT's.

 

So again my question is, if VZ is spending $23 billion, why does LVLT only get a tiny portion of that?  Is it because VZ is building out the on-ramps and doesn't need the highways?  Something else, as I asked above?  I really don't know these answers but I think they're important.

 

Are you suggesting that VZ is being foolish by spending $23 billion on a network that they could simply lease from LVLT for a much lesser amount?

 

Just ask yourself why is it that AT&T are putting caps on their wireless users?  If that wasn't caused by overwhelming demand of the smartphone users, what caused the network overloading and the cap on bandwidth usage?

 

How do you know that the bottleneck is terrestrial bandwidth utilization (i.e. the service that LVLT provides)?  It could be wireless spectrum space, their internal data systems, handset availability, customer support, or any of the myraid of things that are needed to provide the end-to-end service to users.

 

RT

Link to comment
Share on other sites

"Akamai is most valuable for people with content that gets viewed lots of times in lots of places.  hulu is an example of exactly this opposite effect, where akamai would be helpful."

 

rmitz, if Akamai would be helpful to someone like hulu, why is it that hulu is handling traffic to LVLT and Limelight instead of AKAM?

 

http://www.businessinsider.com/akamai-loses-some-hulu-traffic-to-level-3-and-limelight-networks-2010-3

 

"Well LVLT can blame the FCC or President Bush, but it's a competitive marketplace, and if they had had a product that was as compelling as they had claimed, customers would have chosen it instead of re-consolidating themselves. "

 

tiddman, for all the time I have followed LVLT as an equity holder and noteholder, I have never heard once that LVLT management blamed the FCC.  They are "Net Neutral" and behave like so.  The RBOCs don't believe in Net Neutrality.  They are everything to squash it.

 

As your comments about why VZ and others build their own network, you can attribute this to Net Neutrality as well.  You can also can attribute this to the differences in business models.  With the RBOCs as well as the MSOs, they want to be as close to the end-consumers as possible.  A company like LVLT and GLBC etc (aka CLECs), their business model is not to be as close to the end consumers.  An average bill payer on LVLT's network spends $1500 per month.  I don't know of any average consumer that throw away that much cash per month, do you? 

 

So, to answer your question about the need to build out their own networks like VZ, T, and the MSOs do, you have to look at their business models as well as the effect of Net Neutrality. 

 

"How do you know that the bottleneck is terrestrial bandwidth utilization (i.e. the service that LVLT provides)? It could be wireless spectrum space, their internal data systems, handset availability, customer support, or any of the myraid of things that are needed to provide the end-to-end service to users."

 

tiddman, when you say thing like this, it gives me an impression that you don't follow this telecom space that thoroughly.  "Terrestrial bandwidth utilization"?  I think you mean, "bandwidth constraint", right?  This is simple.  In the beginning, cell phones could only provide with voice capabilities which average 9.6kbps.  Then come along phones that can do data which right now can do 120k-384kbps on average in the U.S.  Yet, anyone with a smartphone like an iphone is streamming over T's so-called 3G network which can do 500kbps at best.  Now, you multiply this by approx 10 million iPhone users, you are looking at a lot of bandwidth constraint not only from the spectrum space standpoint(This is another story all onto itself.  Wait til when 4G rolls out) but network bandwidth shortage at the cell towers as well.  If half of these iPhone users get on Youtube at the same time, you are looking at a lot of network choking going on.  I don't know if you know, but fiber to the tower is a double digit growth segment of the telecom these days. 

 

I can assure you that handset availability is not an issue.  Look at the rate of Android phones coming into the market everyday. 

 

"internal data systems"?  What internal data systems? 

 

"customer support"?  Well, your local T customer service dept doesn't have a clue if they can't solve the BW problem, can they?  What can they do?  Free iPhones for the next upgrade?

 

But in the end, it comes down to two things, I believe: network constraint (both wireless and wireline access) and spectrum utilization. 

 

 

 

 

Link to comment
Share on other sites

I'm surprised no one has mentioned LVLT's horrible customer service problems.  We used to use them as our main ISP; however, we left them as our level 3 trunk and dns provider awhile ago due to fore mentioned problems. 

 

Buying LVLT is like buying a long term call option on broadband.  Although, the kicker is competition and insolvency. 

Link to comment
Share on other sites

What internal data systems?

 

Maybe you aren't clear on what services LVLT provides to a company like AT&T.  LVLT is like the multi-lane highway, but the highways would be empty if there weren't thousands of on and off ramps, small highways, streets, not to mention buildings full of people etc.  All of those other things are built out by LVLT's customers.  If there is a bottleneck in growing a service, it is not necessarily in the highway, it may be in one of these more detailed areas, in fact it is more likely to be there because it is more expensive and time consuming to build that out than to provide long haul.

 

AT&T customers aren't interested in raw bandwidth, what they want is email, web pages, music, video, text messages, etc.  AT&T has to have systems that produce, manage, and route that information which don't use LVLT's network.  They have mail servers for e-mail, servers that store usernames and passwords and track usage and provide billing statements, etc.  Then they have to decide how to replicate and cache the data (similar to what Akamai does), and will have computers and non-LVLT network resources dedicated to that.  Then they'll have an army of software engineers writing all of the software for this, and they are on their own schedules.  This all has to grow at the same pace as their customer base, and if they aren't, customer growth is hampered.

 

This is what I mean by AT&T's "internal data systems".  None of this really has to do with LVLT's network, and AT&T could be suffering bottlenecks there.  I've seen a company's ability to do their basic business hampered for 2-3 years when switching to a new billing system for example.

 

My point with all this is that, the fact that AT&T is putting caps on their wireless users doesn't mean that it is because of a shortage of terrestrial bandwidth.  In fact, of all of the things they need, that kind of bandwidth would seem to be very plentiful -- this is why the prices of it have fallen like a rock for 10 years.

 

RT

Link to comment
Share on other sites

Guest ValueCarl

Gross margin(GM) for telecom by definition=the amount of owned versus "outsourced network" facilities.

 

(3)'s GM=80 percent

 

T or VZ's=approx. 50 percent

 

As a matter of fact, (3)'s network due to their managed modem or legacy DIAL UP business is just one local phone call away from greater than 90 percent of the US population. VOIP including all of its enhanced components, especially E911 service has disrupted BELLS' local land line or copper moats as it will continue to do on their last growth engine now being ATTACKED on the wireless front.

 

Voice goes to zero because, "It's the VIDEO NETWORK, STUPIDS!"   

 

When out of territory 50 percent of the time, these former titans of monopolies have no where else to go, so "Who are they going to call"?

 

As for T alienating their customers with curbs and limits, watch CLEARWIRE capture market share in the storm, this other (3) customer. 

 

"Someone is going to get a very large share of the telecom addressable market, forty, fifty or sixty percent. That's what the (3) network was built for. It might as well be us!" James Q. Crowe

 

As for AKAMAI and the confusing posts-intentional or not-being bantered on this board, be fearful as their "free loading" days are coming to an end!  ;) 

 

To win the race; you must first finish the race.

 

At the same time, there are some here who know the utter disdain and dissatisfaction I have expressed for the amount of time this "speculation" has continued to require before success is realized. I have even spewed venom at its fearless leader, Jimmy Crowe. That doesn't mean it's not a high compounding machine retrospectively assuming under $5.00 cost basis' are booked, nor that Jimmy Crowe isn't a great builder and visionary as well as the right person to have led this company where it started from, and where it is going to before this EPIC TELECOM BATTLE is over. imo   

Link to comment
Share on other sites

Guest longinvestor

Gross margin(GM) for telecom by definition=the amount of owned versus "outsourced network" facilitie

To win the race; you must first finish the race.

 

Well said. SEAM has often stated this as the reason why they invested in LVLT's debt and equity (Fixed cost model). "Winning" for LVLT is to keep a seat at the table when the world of "It's all just bits, stupid" is the norm.

 

This convergence has got to drive fear thru the hearts of T, VZ and even Cable majors.....threatening even the 50% GM biz they currently have. Net neutrality is bad business for them. Why they have to protect their current revenue streams (caps on data plans, blocking certain types of bit traffic and such).

 

Ulimately this is not about some esoteric technology which is hard to understand but economics. I do believe the single biggest demographic factor threatening the world of telecom is declining disposable incomes. This is real!! We know that whole swaths of the population have cut out their home telephone, they only have mobiles. Given the many options for watching videos/getting news, I have thought of cutting out Cable TV from my life. The lines between TV/Computers, home phones/mobile, laptops/PDA etc keep getting blurred. Device convergence is being driven by "It's all just bits stupid". LVLT is firmly in the epicenter of all this. Only will take time.

 

 

 

 

Link to comment
Share on other sites

"Akamai is most valuable for people with content that gets viewed lots of times in lots of places.  hulu is an example of exactly this opposite effect, where akamai would be helpful."

 

rmitz, if Akamai would be helpful to someone like hulu, why is it that hulu is handling traffic to LVLT and Limelight instead of AKAM?

 

http://www.businessinsider.com/akamai-loses-some-hulu-traffic-to-level-3-and-limelight-networks-2010-3

 

Again, I'm talking about the technology, not the business.  That article demonstrates exactly my point; hulu *can* use Akamai's technology.  The fact that they're moving away from Akamai presumably means that at the moment, the other options are cheaper.  That won't necessarily always be the case.

Link to comment
Share on other sites

"Again, I'm talking about the technology, not the business.  That article demonstrates exactly my point; hulu *can* use Akamai's technology.  The fact that they're moving away from Akamai presumably means that at the moment, the other options are cheaper.  That won't necessarily always be the case."

 

Ah, we have a technology investor who is in love with the technology, but not the business!  ;D  Take this advice for Robert Cringely who used to write a very good column on PBS called "The Pulpit" and a famous show called "Triumph of the Nerds" on PBS, "It's not the best technology that wins; it's the best exploiter of technology that wins".

 

 

 

Link to comment
Share on other sites

Guest ValueCarl

Competitors in a coopetition state across the US and balance of the globe cannot afford to not "outsource" for missing gross margin they haven't "spent" in facilitating their customers' needs. 

 

<you can't "spend" gross margin. and lvlt shareholders certainly can't "spend" them.>

 

You can keep dwelling on Tiddman's question if you like, as it is true that that must change, i.e., why haven't the revenues grown?

 

I would answer that question with prior posts tied to roll ups of top (3) customers like Alltel having been assimilated into the aquiring entity's "gross margin" territories in addition to the integration mess all on top of the credit crisis. I for one would rather not have to experience the incessant excuses by this business for failure to truly capitalize and exercise on its plan, but it is what it is until it isn't any longer! 

 

This will return to a legitimate growth story again notwithstanding all the incessant, perpetual bearishness, a bearishness that remains ten years old still counting.  imo 

Link to comment
Share on other sites

you can't "spend" gross margin. and lvlt shareholders certainly can't "spend" them.

 

You can't spend gross margin, but you can trade gross margin for lower prices which may result in increased revenues.  Many a business has charged less and seen the resulting revenue growth offset the decreased per-unit revenues.

 

Sometimes I wonder if LVLT's ~80% gross margins are part of the problem rather than part of the solution.  Customers know that if they give LVLT $1 of revenue, only $0.20 of that goes towards the cost of the network service.  So they must be asking themselves, is it possible that I can provide myself the same network service at even 200-300% of LVLT's cost, i.e. $0.40-0.60, in which case it would still be a huge savings for me compared to buying the service from LVLT for $1.00?

 

I really don't know the answers, because I've never been in the shoes of someone who purchases large-scale network capacity for a telecom company, but obviously many a customer is finding lots of reasons to obtain their network services from places besides LVLT despite LVLT's claim of having the best and cheapest service.

Link to comment
Share on other sites

Guest ValueCarl

Do you really believe this is true that they have no additional expenses inside their gross margin? 

 

<Sometimes I wonder if LVLT's ~80% gross margins are part of the problem rather than part of the solution.  Customers know that if they give LVLT $1 of revenue, only $0.20 of that goes towards the cost of the network service.>

 

Twenty cents represents the cost (3) incurs for tapping other carriers' networks for non owned routes.

 

They have costs on their 80 percent margins in the form of fixed costs tied to maintenance as well as int. expenses. As the previously constructed and financed gross margin factory fills with bursting bits flowing down their pipe(s), this fixed cost operating leverage moves to the free cash flow line.

 

Once at the free cash flow line, debt reduction programs in the form of refi's and elimination further inure to equity owners in a virtual cycle. Yes, this is a levered factory on steroids. The steroids represented by debt, will not be a problem once (3) usurps the addressable markets they were built to conquer during some of the most tumultuous telecom market periods and phases in market history, periods which required (3) to adjust certain strategies in order to insure survivability. More than likely, these challenges for a nascent, emerging telecom provider will never be seen for centuries more at the same time a new sheriff in telecom town is being declared. 

 

So Tiddman, back to where are the sales with specific focus on SG&A as part of opex? That's tied to a changing "STOREY" in the executive suite. "Bring it on!" JQC  imo     

Link to comment
Share on other sites

Guest ValueCarl

Valuecfa, my NOL expert! Do you know (3)'s annual maintenance cost-excluding interest-to keep the lights on across their $25B PP&E when measuring "replacement cost" according to their most recent executive presentations? Slide 6 once again.

 

http://files.shareholder.com/downloads/LVLT/931673738x0x376699/66e00665-eed9-4fde-95ec-2661d561ce98/Barclays%202010%20TMT%20Conference_052710.pdf

 

Interestingly, the seven acquisitions that were made during the 05-07 time frames has "supplied" them with sufficient "inventories" tied to both existing and new construction which will continue to assist keeping their maintenance costs-the component I am questioning you about-HUNKERED down.  :) 

Link to comment
Share on other sites

  • 2 weeks later...

According to the Business Insider, LVLT is the number 3 most hated company in America.  One of their metrics to determine this is shareholder return.  Obviously, LVLT is way up there in this regard.  The other metric is customer satisfaction.  That is not surprising to me.  It amazes me why people still flock to this terrible company.

 

Level 3 (NASDAQ:LVLT) is one of the nation’s largest broadband networks, a roll-up of a number of smaller businesses. The execution of the business strategy was flawed and integration problems were severe. Level 3’s stock is down 50% over the last two years. The company has been plagued by customer complaints. Level 3 has fired a number of people over the last three years due management’s ability to quickly and successfully integrate its patch-work of businesses, and its inability to reduce the firm’s huge financial losses.

 

 

Link to comment
Share on other sites

"According to the Business Insider, LVLT is the number 3 most hated company in America.  One of their metrics to determine this is shareholder return.  Obviously, LVLT is way up there in this regard.  The other metric is customer satisfaction.  That is not surprising to me.  It amazes me why people still flock to this terrible company."

 

This is all depend what kind of value investor you really are.  AIG ranks on top of this list with all of its frauds and shennanigans, but that didn't stop Berkowitz from buying $1BIL worth of the shares.  He also owns another hated stock on there: C.  There is nothing worse than frauds when it comes to corporate scandals.

 

Eddie Lampert owns Sears Holdings/K-Mart outright, and that is another hated stock on that list.

 

So, tell us something we don't know about the mis-executions of LVLT's management....

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...