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Level 3 Acquisitions Begin to Gel

After spending much of 2007 strugging with its many acquisitions, Level 3 Communications Inc. (NYSE: LVLT) is saying its business is beginning to run as smoothly as it did at the beginning of last year.

"Our service quality and management deteriorated during the first half of 2007," said Level 3's chief operating officer Kevin O'Hara during the company's fourth-quarter earnings call today. "But as a result of the numerous organizational processes and systems changes, our performance metrics are now equal to, or better than, the levels customers were experiencing at the beginning of 2007." (See Level 3 Reports Q4.)

That would be a welcome sign for Level 3, as sales were beginning to slip due to customers growing frustrated with its poor performance.

Such struggles turned out to be the price of an acquisition spree that included Broadwing, ICG, Looking Glass, Progress Telecom, Telcove, and WilTel. The moves at the time were impressive enough to earn Light Reading's 2006 Best M&A Strategy Leading Lights award. (See Level 3 Feels Integration Irritation and LR Names 2006 Leading Lights.)

During the fourth quarter, Level 3 racked up about $20 million in integration expenses, chief financial officer Sunit Patel said on the call. But he noted that operating expenses should start dropping in the second quarter of this year, "as integration activities fall off."

Service management and delivery is one area where Level 3 still sees room for improvement; officials said that's a more complex area that will take longer to sort out.

Shares of Level 3 were trading up around 5 percent for most of the day but eventually slipped, trading up only $0.04 (1.27%) at $3.18 late in the day.

In the fourth quarter of 2007, Level 3 saw its losses narrow to $91 million, or 6 cents per share, on revenues of $1.1 billion. In the same quarter of 2006, the company lost $237 million, or 20 cents per share, on revenues of $846 million.

Fourth-quarter losses were better than analysts' consensus prediction of 11 cents, according to Thomson Financial .

— Raymond McConville, Reporter, Light Reading

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