Integration woes hamper Level 3

Level 3 Communications struggled to keep up with sales demand in the second quarter as it worked to integrate several recent acquisitions.

The carrier’s second-quarter revenue of $1.052 billion was essentially flat from a year earlier, while its $202 million net loss ($0.13 per share) was less than a third the size it was a year earlier.

Level 3 made progress integrating its seven acquired assets in the quarter, Chief Operating Officer Kevin O’Hara said in a statement released this morning. “However, we did see an increase in service activation times as we continue to use the multiple order entry and provisioning processes and systems that were operated by the acquired companies. This cycle time increase had a negative effect on the rate of core communications services revenue growth during the quarter. As we have consolidated key operational functions and organizations, we believe that for the short term, our operating environment has become more complex.”

As the company worked to train employees, it was forced to deal with multiple legacy systems from acquired companies. Where organization and functions were consolidated but unified systems not yet implemented, employees were trained to use elements of various legacy systems, O’Hara said. As a result, the average time it took for Level 3 to convert new service orders to revenue increased 50% to 75% in the quarter.

The company’s wholesale business, which accounted for 56% of its core communications revenue, was particularly affected by the problems.

In the third quarter, the company will deploy systems to unify network operations, continuing to implement them next year but expecting to reap operating improvements this year. It is also focusing on improving its management of the interim hybrid environment. The company expects the majority of its integration efforts to be completed this year. All IP interconnects have been completed, and the majority of IP interconnects to the company’s transport networks have completed. All network interconnects should be completed in the third quarter, the company said. The company also consolidated network operations centers (NOCs) inherited from Broadwing Communications, eliminating seven of nine NOCs.

Though the company anticipated integration challenges, the second quarter brought “surprises,” Chief Executive Officer James Crowe said. But the company expressed confidence in its overall integration efforts and optimism about the current pricing environment and sales demand. “Backlog is rising,” Crowe said. “Many times that’s good news. But it’s not if we miss customer due dates.”