LVLT's debts are indeed a big concern.
However, Level3 has been selling/leasing its dark fiber to Comcast; XO has built a longhaul backbone based on LVLT's fiber; Google, Yahoo, MSO, ... everyone is known using LVLT's backbone. I don't know if there are any other company in the world that owns as much dark fiber as Level3. When bandwidth demands become so high, Level3's huge dark fiber underground will be the most valuable asset with almost unlimited growth potential.
It is an absolutely great move for Level3's purchase of Savvis business and its decision to build a nationwide CDN with the support of Level3's own huge networks.
Regarding LVLT's valuation, Bill Koss should first ask why on earth AKAM with four hundred employees and annual sales under $500 million could claim a $8 billion market cap. How high the entry barrier is for a company like Level3 to establish its own CDN business? The hardware - CPUs, hard disks, and memory are all so dirt cheap that I had been repeatedly and unsuccessfully suggesting BWNG do what LVLT is exactly doing now. I posted more than once on SI, and listed the cost for such a CDN to show that with little investment, Broadwing - a company with a backbone and 110,000 enterprise customers would benefit.
By some estimation, the largest server farms owned by Google - with 50% of search market share have 450,000 servers. At $2000 each, Level 3 could build its own brand new server farms in the same scale but with much more power with a mere $900 million investment in hardware.
When bandwidth price becomes stable and rising, and when Level3 starts to eat into Akamai's lunch, is Akamai or Level3 a better investment? |
