Through The Fly's Eyes: Level 3 Communications
Service Provider Attempts To Show Its Power
Level 3 Communications (LVLT) flexed it muscles yesterday when it announced that it would be dropping prices for its content delivery network (CDN) services. Level 3's stock jumped over 4% on the news.
The IP-centric service provider has boasted for years about its low-cost structure and constant inferences that it could slash prices and drive volume unlike any other network provider in the country, if not the world. This is the first time the company has been so public about a specific price action.
Lisa Guillaume, VP of CDN Product Development for Level 3, said CDN services usually carry a 20 to 30% premium over the cost of transport, in a LightReading.com interview. This pricing action eliminates that differential. The ownership of a massive long-haul network and CDN platform will allow Level 3 to do this profitably, she added.
Level 3's network was designed to play the price-elasticity curve for bandwidth consumption in the Internet age. Volume increases in bandwidth consumption would offset per-unit price declines for transporting all those bits of information for MySpace, YouTube and Wallstrip.com.
Level 3 reported light revenue and earnings in the most recent quarter as it attempts to integrate seven acquisitions that it has completed during the last eighteen months. Demand for its services is strong, but the company is having issues getting the new customers onto their network.
After years of anticipation, possibly yesterday's announcement is a sign that Level 3 is finally ready for prime time and will be able to drive its business model, leading to higher revenue and profit growth. The company is due to report earnings on October 23 -- a must listen to call for investors.