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Level 3 Revs Its Enterprise Engine

Dan O'Shea
4/30/2014

Earlier this month, Jeff Storey completed his first year as president and CEO of Level 3 Communications, but the real story may be how much he has remade the company into an enterprise market mover and shaker during that stretch.

The carrier more often identified with the wholesale market is finding much more of its success in the enterprise sector these days. Level 3 Communications Inc. (NYSE: LVLT) proved that again today, reporting first quarter 2014 earnings highlighted by an 11% increase year-over-year in enterprise revenue. Enterprise revenue now represents 66% of Level 3's overall Core Network Services revenue, compared to just 34% coming from the wholesale market.

"Enterprise continues to be the growth engine for the company," Storey said on the quarterly earnings call this morning. Meanwhile, competition and other factors in the wholesale sector left Level 3's wholesale revenue for the quarter down about 1.4% year-over-year. In dollars, enterprise revenue for the quarter was about $962 million, and wholesale at $495 million.

Storey cited several major moves the company made in recent months as critical to its enterprise success, including its recently announced deal with Digital Realty to offer enterprise customers direct connections to Amazon and Microsoft cloud services. (See Level 3 Cloud Connects Digital Realty.)

During the call, Storey also reiterated earlier statements he has made suggesting that Level 3 is in no hurry to take on another acquisition binge of the kind that merely defined the company for its first 15 years in existence. "We're certainly focused on organic growth, and there are many ways to continue doing that through deeper penetration of our existing market," he said, though he added that Level 3 would continue to evaluate "inorganic" growth opportunities, such as acquisitions, as they present themselves.

Storey took charge at Level 3 in April 2013, only the second CEO in the company's history after CEO and co-founder James Crowe stepped down a month earlier. (See Level 3 Names New CEO.)

— Dan O'Shea, Managing Editor, Light Reading

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DOShea
DOShea
4/30/2014 | 9:27:02 PM
Re: The stock story
That's a good question. L3 sees it as easy pickings right now with a lot of enterprises ready for upgrades, and I don't think it has experienced the longer-term support costs with many of its accounts. Jeff Storey also has been making the point for a couple quarters now that L3 is trying hard to improve the operational and management aspects of its services. But, this is a point worth exploring with L3 - thanks.
briandnewby
briandnewby
4/30/2014 | 3:37:01 PM
Re: The stock story
Dan, do you think the move towards more enterprise revenue will eventually impact earnings, given the greater support needs?

They might be targeting a specific type of enterprise customer--either by size, region, or even product type--that fits a lower cost of support model.
DOShea
DOShea
4/30/2014 | 3:24:11 PM
The stock story
Level 3's stock price has responded well to its quarterly earnings. LVLT was up more than 15% last hour to about $42.70.
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