From the WSJ:
The Wall Street Journal Interactive Edition -- April 1, 1998
Level 3's Wall Street Debut
Attracts Believers, Doubters
By BRIAN STEINBERG and SHAWN YOUNG
Dow Jones Newswires
Level 3 Communications Inc., a closely watched telecommunications start-up, made
an unusual debut on the Nasdaq National Market Wednesday.
Shares of Level 3 opened at $79.50, reached as high as $83.75 and ended the day
at $74.25. Level 3 transferred its Class D shares, which were worth more than $9
billion, from an over-the-counter bulletin board to the Nasdaq. Level 3 now has
about 147 million common shares outstanding.
Before its Nasdaq debut, Level 3 traded as the Class D shares of Peter Kiewit Sons
Inc., an Omaha, Neb., company known mostly for construction. Those shares closed
at $71.625 Tuesday.
The company's backers are hoping not only that Level 3's novel technology will be a
hit, but also that lightning will strike twice for President and Chief Executive James Q.
Crowe, whose management team built telecommunications pioneer MFS
Communications into a mid-decade success story.
"For as far as the eye can see, the real competition is between the new entrants and
the older companies," Mr. Crowe said.
But Level 3's corporate plans are largely untested, even if Mr. Crowe's history is a
storied one.
Experts certainly applaud his concept: Level 3 wants to spend $3 billion developing
a national fiber-optic telephone network using Internet-protocol technology to send
voice, data and video over the same lines with lower costs. When it comes to the
Internet, however, the same observers warn that market waters can prove roiling
even for the most experienced executive.
Mr. Crowe certainly has the credentials. He piloted MFS Communications, an early
Internet and telecommunications giant, from its days as a company worth $800
million until its 1996 sale to WorldCom Inc. for $14.3 billion.
"Hopefully, our track record has something to do with it," Mr. Crowe said of
Wednesday's run-up in the company's stock.
Mr. Crowe has his fans. Stephen Lococo, a senior vice president of Omaha's
Footprints Research, notes the executive "has been able to deal with the biggest Bell
companies in the country and be very successful."
"Those management assets are being valued into the stock today," he added.
But others suggest investors may want to consider other factors.
"James Crowe struck gold last time out, but when he did that, he took advantage of
an opportunity in a stable industry," said Jeffrey Kagan of Kagan Telecom Associates
in Atlanta. "He's trying to recreate that miracle."
The new technology, Mr. Kagan said, may prove the hurdle the company has
problems surmounting.
While Level 3's Internet technology certainly offers plenty of opportunity, the risk is
also greater. "The Internet is so fluid and so quick-changing and so dynamic that
there's really no way to project six months from now where opportunities are going to
lie," Mr. Kagan said. "[Crowe] is going to have to have the ability to zig when the
Internet zigs. That's something he hasn't proven yet."
According to Salvatore Muoio, who follows telecommunications stocks for his
boutique investment firm, S. Muoio & Co., Level 3's concept is good, but investors
might still want to be cautious. "It's going to be a fantastic company, but now the
market value is out of control."
Investors have flocked to such telecommunications opportunities before.
Teligent Inc. has few customers and has generated little revenue to date, but the
market showed great interest when the Vienna, Va., company led by former AT&T
Corp. President Alex J. Mandl debuted last November. Teligent hopes to establish a
national telecommunications network using its holdings of microwave spectrum
rather than traditional ground-based fiber.
Certainly Level 3 could also face complications.
"We really don't know," said Robert Rosenberg of Insight Research Corp., a
telecommunications-marketing research firm. "At some point, there literally could be
hundreds of different carriers competing for your business."
Level 3's technology, he added, "looks to be a sweet spot, and Wall Street is
reacting -- but Wall Street also reacts with a herd mentality."
Mr. Crowe said Level 3 will build fiber directly to large companies, offering service on
a single Internet-protocol network, starting with local phone service. These
customers would typically have a minimum of 250 employees, he said, but the
company could serve smaller firms, such as financial-services companies, that move
tremendous amounts of data.
And he said his company does face a great deal of competition. Network builders
such as Qwest Communications International Inc., IXC Communications Inc. and
Williams Cos., as well as phone giants like AT&T, MCI Communications Corp., Sprint
Corp. and WorldCom, will all target similar markets.
While the market appeared to favor the company Wednesday, Mr. Rosenberg of
Insight Research suggested a long-term approach might prove more well-advised.
"The fellows on Wall Street," he quipped, "have as much fun running them up as they
do running them down."
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