Level 3's CDN Story Rides on Fiber

Level 3 Communications Inc. (NYSE: LVLT) says its vast fiber network will help turn its newly acquired content delivery network (CDN) business into something that can compete with Akamai Technologies Inc. (Nasdaq: AKAM) and Limelight Networks Inc. (Nasdaq: LLNW).

The company said in December it would pay $135 million in cash for Savvis (Nasdaq: SVVS)'s CDN business. The Savvis CDN consists of two dozen caching server centers in North America, Europe and Asia, and a layer of routing and caching software, Level 3 says. (See Savvis to Sell CDN and Level 3 Spends $135M on Savvis CDN.)

Level 3 says it also acquired all of Savvis' CDN customers, including marquee account Microsoft Corp. (Nasdaq: MSFT)

Level 3 VP and general manager of the CDN business, Tom Boasberg, says his company's intent is to convince current Level 3 customers like Google (Nasdaq: GOOG), YouTube Inc. , and MySpace to use its new CDN services, too.

Boasberg says Level 3's advantage is that it doesn't have to pay third party carriers to transport data out to the data centers. "We're the only CDN with a Tier 1 IP backbone. We're not paying anyone else IP transit. We're not paying anyone else interconnection costs to interconnect with other IP providers to deliver content," Boasberg says. (See Level 3 Still Hungry for Fiber.)

The carrier will sell CDN services as part of a larger bundle of services that includes collocation, point-to-point connectivity, and private-line services.

Not everyone believes you need a fiber network to run a solid CDN. Akamai, the market-leading CDN, says buying transport in large amounts (at volume rates) from numerous carriers, is an expense that's a necessary part of the CDN business. (See Akamai Shows No Jitter in Q4.)

An Akamai spokesman writes in an email note to Light Reading that distribution of large content requires connectivity to "hundreds of networks, not just a single network."

Boasberg says Level 3 has "an aggressive buildout plan" for the Savvis CDN, but details are a little vague. At this time next year, Boasberg says, the number of caching server centers on the network will grow from "a couple dozen" to "a few dozen." He explains that "hundreds or thousands of caching nodes" won't be needed to fulfill its customers' distribution needs.

— Mark Sullivan, Reporter, Light Reading

bear 12/5/2012 | 3:13:57 PM
re: Level 3's CDN Story Rides on Fiber I am willing to gamble a good chunk of my savings that Level 3 will drive this CDN business into the ground. Level 3 is run by bell-heads (who ironically think of themselves as renaissance men, which is comedy in and of itself) whose core business is wholesale fiber. Furthermore, their history of making disparate businesses work into their lunk head culture is very little to be desired (didn't they sell out of the data center services business?). Jim Crowe is a charlatan, a huge ego-driven guy who has piled more debt into that company than he has ever driven value for his shareholders (exhibit A: the helicopter landing pad on his Cherry Hills home). What did the article say, that they are going to sell it has part of their "bundled services?GÇ¥ - Yeah, right! And they hope that Google will buy their CDN?? LOL! Hellllooooooooo???? Earth to Level 3, come in, over.....Google is about to dump Limelight (YouTubeGÇÖs CDN), what indication on this planet makes you think that they are going to use your new CDN (which is Sandpiper and Digital Island)? It doesnGÇÖt even have video capabilities! Let's get something straight - companies like Google are L3 customers for one reason only - you supply them with a commodity that they negotiated the snot out of - dark fiber and maybe a lit 10G somewhere. That's it.

My bet is that at this time next year, it will be a blip on the radar or non-existent. And here's a message to that geek squad down in Thousand Oaks (ie the Sandpiper and DI developers who are sequestered in their own little private Idaho somewhere): L3 has a history of bumbling acquired companies and GÇ£disintegratingGÇ¥ them into their "cultureGÇ¥- then theyGÇÖll squeeze the piss out their budgets. Wake up and start thinking about your future.

You heard it here first.
lightplay 12/5/2012 | 3:13:57 PM
re: Level 3's CDN Story Rides on Fiber I worked at Level 3 for four years and the previous post is right on the money. The company just doesn't have the right "DNA" to make this CDN business work. Sales won't want to sell it (that's what happend at Savvis, one of the reasons why they sold the CDN biz), and once the company begins to see diminishing returns, Kevin O'Hara, Jim Crowe, Sureel Choksi and co. will pulverize it.

Kudos to the "bear" the previous poster. Not only was that funny to read, it also happened to be on the mark.
BrandDC 12/5/2012 | 3:13:56 PM
re: Level 3's CDN Story Rides on Fiber The article was inaccurate. Level 3 bought caching AND streaming networks from SAVVIS. Also, the method that YouTube and many other sites use to deliver video is by "progressive download" over caching, not "true" streaming so Level 3 is highly capable of delivering YouTube's content. Also, the number of caching cluster locations numbers in the few hundreds, not two dozen.

Level 3 will maintain off-net clusters where it makes sense but you need to realize that Level 3's size of network and peering relationships place them, at most, 1.77 hops away from any destination on the web (Fixed Orbit).

Sit back and watch...this is getting interesting.
bear 12/5/2012 | 3:13:56 PM
re: Level 3's CDN Story Rides on Fiber That's useful information, but it's mere statistics. You have to remember that Savvis had the network (access circuits excepted), the customers, the server density to be one of the biggest leaders in the world. Why didn't it happen? My guess is focus. Why will Level 3 be different, especially with a different business? I'll argue that it will be worse. It takes more than a telco network to make this business work. Besides, Level 3 will never be the CDN for YouTube as long as Google owns it. That's $12M in annual costs it can immediately eliminate. And if you know anything about Google, it's that they are the ultimate DIY'ers. Besides, Level 3 doesn't have video capabilties, at least it doesn't today. Streaming and video are not the same.

I stand by my forecast.
Mark Sullivan 12/5/2012 | 3:13:55 PM
re: Level 3's CDN Story Rides on Fiber Bear, Thanks for the comments on L3 CDN. RE: "Google is about to dump Limelight" I would like to learn more. If you're willing, please shoot me an email at [email protected]
Mark Sullivan 12/5/2012 | 3:13:54 PM
re: Level 3's CDN Story Rides on Fiber What exactly do you mean by "caching AND streaming networks"? We printed the description of the SAVVIS CDN that was provided us by the Level 3 executive, including the part about the dozen caching server centers. Do you have information he doesn't?
bear 12/5/2012 | 3:13:53 PM
re: Level 3's CDN Story Rides on Fiber Simple, really. Google has the best CDN that nobody knows about and can easily exchange Limelight's for its own. Furthermore, Google is adamant about controlling costs and it can save ~$12M a year (assuming that YouTube is charged $1M a month for LL's services, which seems about right based on traffic flows). I'm not saying that LL can't make up that business, I'm saying Google is the biggest insourcer on the planet and it's silly that L3 would beleive it would have a shot at that busiiness (now, if Google buys L3, that's a different story altogether). My point in all of this is that L3 is out of touch with most things not having to do with fiber.
BrandDC 12/5/2012 | 3:13:52 PM
re: Level 3's CDN Story Rides on Fiber SAVVIS (Sandpiper & Digital Island) had separate networks for caching and streaming that comprised their "CDN Services". Level 3 bought the caching and streaming networks plus their "Intelligent Traffic Management" (DNS-based load balancing) service along with the intellectual property (a portfolio of patents) and the CDN-focused operations, engineering, support and product management personnel. The caching network consisted of a few hundred cluster locations worldwide as of last month when Level 3 completed the acquisition.
aarongl 12/5/2012 | 3:13:51 PM
re: Level 3's CDN Story Rides on Fiber I hate to nitpick, but Fixed Orbit is about as useless as tits on a boar; their information and the algorithms they use to churn said information are woefully incomplete. Network reach can be defined in many ways (AS path length, fiber route miles, # of POPs...etc), Level3 is big, but not so much bigger than others to infer they have some sort of size advantage.
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