from Yankee Group--
>1. Level 3 Comes Out with a Bang!
>
>April 1 marked Level 3's debut as LVLT on the NASDAQ, and by the end of the
>day, the company had a market capitalization of approximately $10.91
>billion. Not bad--that is for a company that hadn't yet solidified any
>rights of way to build its network--and still doesn't have a single
>customer.
>
>But, following on the heels of its recent deal with Frontier (see last
>week's YRN), Level 3 announced two pivotal agreements that mark important
>steps in its overall business strategy to become a facilities-based
>provider of IP-based services. Last week, Level 3 and Union Pacific
>railroad announced a deal that will provide Level 3 the use of
>approximately 7,800 miles of rights-of-way along Union Pacific's rail
>routes. And, in another strategic move, Level 3 announced on April 6 that
>it would acquire XCOM Technologies in a deal valued at approximately $165
>million.
>
>The Union Pacific agreement initially allows for Level 3 to construct and
>operate a fiber network which will connect 25 cities West of the
>Mississippi. This deal marks the first definitive announcement by the
>company as to where it will begin building its nationwide IP-based network,
>but we believe this deal is just the first in a line of deals that will
>position Level 3 to quickly and cost-effectively build out its network
>infrastructure. While the Union Pacific deal provides Level 3 with key
>rights-of-way, it limits Level 3's network to the Western U.S., which would
>partially explain Level 3's second strategic move to acquire XCOM
>Technologies.
>
>The acquisition of XCOM, a Massachusetts based Data- CLEC, by Level 3 is a
>complementary fit for both companies. XCOM brings to the table: (1) a
>proprietary technology which provides for the full interconnection of the
>PSTN to new IP-based networks, (2) an existing facilities-based network
>that will act as a gateway into the Northeast corridor, particularly the
>Northeast and Mid-Atlantic States, and (3) an existing customer base of
>about 10,000 local access lines. What XCOM receives in return is the
>ability to expand nationwide and to capitalize on the vast resources and
>well-seasoned management team that Level 3 has to offer.
>
>Despite the fact that Level 3 has gained considerable mind-share, it is
>still faced with the daunting task of competing against similar carriers,
>IXC and Qwest, who are both further along in the process of building
>networks and acquiring a customer base, as well as a re-incarnated Williams
>who has yet to build its new network. For this reason, we expect more
>deals to follow that will provide Level 3 more ubiquitous rights-of-way and
>resources. The company has indicated that it will not begin construction
>on the Union Pacific routes until the third quarter of 1998, but in the
>meantime, Level 3 will begin to leverage its newly formed relationship with
>Frontier and XCOM and the experience of its management team to begin
>building a customer base and to try and lessen the distance between itself
>and its key competitors. |
