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Technology Stocks : The *NEW* Frank Coluccio Technology Forum -- Ignore unavailable to you. Want to Upgrade?

To: Frank A. Coluccio who wrote (8534)	12/29/2004 8:49:44 AM
From: Peter Ecclesine	Read Replies (1) \| Respond to of 46821

Hi Frank, >>Level 3, France Telecom Forge New Fiber Pact<< biz.yahoo.com The new agreement replaces and terminates an earlier, 20-year dark fiber contract signed by the companies in October 2000. Under the prior agreement, France Telecom acquired a nationwide dark fiber network from Level 3, along with ongoing maintenance and colocation services. The fiber strands leased to France Telecom in the initial transaction will revert to Level 3. The transaction is expected to be completed in the first quarter of 2005. "This agreement makes sense for France Telecom," said Jean-Philippe Vanot, Executive Vice President of France Telecom's Networks, Carriers & IT division. "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." As a result of the replacement of the dark fiber contract signed in 2000 with the new lit services agreement, Level 3 will no longer recognize amortized revenue under the pre-paid dark fiber contract as required under Generally Accepted Accounting Principles (GAAP). Instead, in accordance with GAAP, Level 3 expects to recognize approximately $40 million in deferred, non-cash termination revenue in the first quarter of 2005 related to the cancellation of the 2000 dark fiber agreement. While the monthly revenue recognized pursuant to GAAP is expected to decline, Level 3 expects the cash received monthly under the new lit services contract with France Telecom to exceed the monthly cash payments Level 3 previously received from France Telecom for dark fiber maintenance and colocation services. petere

To: Frank A. Coluccio who wrote (8534)	12/29/2004 4:58:48 PM
From: Sam Salomon	Read Replies (1) \| Respond to of 46821

LVLT/FT: The accounting stuff is really of little relevance here, I believe. In 99 or 2000 there was an accounting change. Before, you got the cash for DF when it was delivered and you booked it into revenue at the same time. Then, e.g., for a 20 year IRU, the accounting was changed, so that you had to amortize the DF sales revenue over 20 years in GAAP, i.e. over the term of the IRU. In addition FT continued to pay LVLT maintenance revenue for the DF, which, however was very little. This revenue was recognized simultaneously in GAAP. Now FT decided that it is cheaper for them to let LVLT run the optronics or part of it, i.e. it is like outsourcing. I believe it is cheaper for FT, because probably FT is not that large in the US. So in cash they pay now more than the maintenance revenue, as LVLT now also has the cost of running the optronics. But now FT terminates the IRU, so instead of continuing to amortize the balance of the DF revenue LVLT recognizes it in one quarter. Apparently when the DF was sold to FT in 2000, the price has been so high that the annually amortized amount is now larger than what it cost to outsource the DF, the optronics and the people who run that. Just shows how much DF was overpriced in 2000. I believe that may make sense for other foreign carriers that have limited networks in the US. So far large IXCs have not yet done this. SBC, however has outsourced their LD voice network to WilTel/Leukadia.