Level 3 Communications reported Q2 revenue of $941 million compared to $1.23 billion for the previous quarter, which excludes $17 million and $20 million of revenue, respectively, from Software Spectrum's contact services business which is included in discontinued operations. Level 3's Q1 figures also reflected one-time settlement revenues. The net loss for Q2 was $0.95 per share, or $462 million. This includes a $190 million charge associated with the premium that was paid for the full conversion of the company's 9% Junior Convertible Subordinated Notes due 2012. Level 3 noted the communications revenue was slightly ahead of its expectations. The company said it was continuing to make steady progress in the integration of Genuity, however sales cycles were longer than expected. Some other highlights:
- Pricing for circuits at OC-3 and below has remained stable; however there is a lot of price competition for higher speed circuits
IP price compression also continues, especially in larger deals
Level 3's sales of wavelength IRUs increased in Q2. Prospects for metro IRUs are good, especially for MSOs
Level 3's colocation business grew slightly in the quarter, pricing is stable, and the market is in turmoil due to Sprint and C&W exiting from this segment
Level 3's softswitch business also remains stable, although price declines are expected as major contracts across the industry come up for renewal. Traffic volumes for Level 3's managed modem service averaged about 29 billion minutes per month, down 14% from Q1 due to seasonality.
Level 3 is developing plans for a hosted PBX service sold through channel partners. The service would be based on a platform acquired through Telverse. The IP PBX service would be aimed at small to mid-size businesses and connected via private line, DSL or cable modem.
Level 3's top ten customer list (alphabetical order) includes AOL, Cable & Wireless, Calpoint, Earthlink, France Telecom, Microsoft, SBC, United Online, Verizon and 360networks. These companies account for 54% of Level 3's communications revenues.
In a conference call, the company said its Q2 EBITDA margins of 26% compare favorably with the Q1 EBITBA margins of AT&T at 26%, Sprint at 18%, MCI at 10%, WilTel at 0% and Global Crossing at -2%.
The company will continue to consider acquisitions to add customer traffic to its network.
