Level 3, France Telecom Forge New Fiber Pact
[FAC: The gist of this story is that France Telecom and Level3 have agreed to chuck their dark fiber deal and replace it with a private line contract. FT apparently sees the benefit of having managed services delivered to it instead of virgin fibers that it must light, amplify and maintain itself. This could make eminent sense, especially since the core of FT's operations lie on the other side of the pond, and under the new agreement they'll be taking advantage of managed colocation services, as well. Caution: Sit down before you get to the end of this story, because the double talk that surrounds the manner in which the dark fiber financial accounting is now being reconciled during the transition period is bound to make you dizzy. I'm still questioning whether the author, Carol Wilson, has it right or not. Note, Carol maintains that the move away from dark fiber to private line leasing is a growing movement among carriers that previously elected to go dark. Could this apply to enterprises and universities that purchased dark strands during the boom years, too? I tend to see the rationale for enterprises doing this, since 64 lambdas may never make sense for them to own outright, which probably applies to smaller carriers, as well. How about universities, institutions that prefer to roll their own when they can, or when they must? But large, international carriers? Here, keep in mind, the "private line" that is replacing the dark fiber can mean any denomination of dedicated, managed bandwidth, whether it's a T1 or an OC 768 lambda - it makes no difference - as long as it's a managed service that is delivered as an end to end transmission line that meets industry parameters to the end customer, or carrier, as it were. Is TheStockFairy looking in at this time? If so, I'd like your take on the accounting language, below, as well as anything else you can tell us about the 'trend' back to private lines that Carol speaks of. TIA.]
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Level 3, France Telecom Forge New Fiber Pact
Telephony Online, by Carol Wilson, Dec 28 2004
telephonyonline.com
France Telecom has joined the industry movement away from leasing dark fiber and has reached an agreement with Level 3 Communications to buy “lit” circuits instead.
Under an agreement announced today, the two companies will terminate the 20-year, dark-fiber leases they signed in October of 2000, replacing that agreement with a contract under which Level 3 will provide transmission and collocation services to France Telecom going forward. Level 3 becomes France Telecom’s primary supplier of lit broadband transport and collocation services in the United States.
"This agreement makes sense for France Telecom," said Jean-Philippe Vanot, Executive Vice President of France Telecom's Networks, Carriers & IT division, in a prepared statement. "It will enable us to continue delivering the same services with the same levels of quality to customers in the retail and wholesale sectors, including our subsidiary Equant, while increasing our competitiveness. France Telecom will retain all other network assets in the United States for IP, voice and signaling traffic. Level 3 has been a reliable network partner for France Telecom over the past four years, and we're pleased to continue our relationship with them through this new agreement.”
While Level 3 sold dark fiber in abundance in the late ‘90s and in 2000, most of its customer today prefer to buy leased lines rather than provide their own transmission gear and maintenance, according to the company.
For Level 3, the new agreement represents a better ongoing source of revenue, and a better customer relationship.
Under complex accounting rules, the company will experience a one-time $40 million artificial revenue bounce in the first quarter of 2005 based on what is called “non-cash termination revenue.”
This money represents all the remaining revenue of the original lease agreement, which normally would have been reported as revenue on a quarter-by-quarter basis for the 20 years of the lease, under Generally Acceptable Accounting Principles. What makes the bounce artificial, however, is that while the revenue is being reported now, under an accelerated schedule, the actual cash reached the company’s coffers in October, 2000, when the original lease agreement was signed.
Further complicating the accounting picture, Level 3 will actually record less revenue from France Telecom going forward, while receiving more cash. Under the old agreement, Level 3 received monthly payment for collocation and operations/maintenance fees, and reported these as revenue along with each quarter’s non-cash revenue for the long-term lease.
France Telecom’s payments for the new services will exceed what it was paying for collocation and operations/maintenance, increasing cash flow to Level 3. But the new payments won’t exceed the total of cash and non-cash revenue.
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FAC
frank@fttx.org |
