Level 3 execs forego bonuses

Level 3 Communications executives have put their money where their mouths are: Chairman and CEO James Crowe and his top four executive team members will not get bonuses for 2007 because of the company’s disappointing performance.

Crowe made that announcement at the beginning of today’s analyst call on Level 3’s fourth-quarter and full-year financial results. While calling the fourth quarter “solid” and commenting on Level 3’s improved installation abilities, Crowe admitted neither he nor his team was satisfied with the year overall, given the company’s documented inability to keep up with orders.

But he promised better results for 2008, saying Level 3 will focus on increasing its sales and installation rates to match market demand rates, which aren’t softening, and expects to be free-cash-flow-positive by 2009 at the latest.

Level 3 isn’t seeing any softening of demand based on the economic slowdown and could experience just the opposite, Crowe said. “We have not seen any indication of any softening in demand or any issues with regard to pricing that would affect our outlook on our ability to sell or market our services. In terms of the macro-economic environment and our own position as a company – when times get tough, companies tend to look harder to costs, to sharpen their pencils, so to speak, and the propensity to switch from incumbents to alternatives potentially go up in bad times. That’s about 25% of our business. The balance is about wireless demand and about the consumer Internet user at one end connected up to an exploding amount of content at the other end.”

Level 3 doesn’t expect either wireless or Internet traffic demands to fall off, he said.

Crowe also stressed his company’s future in delivering video content.

“Bandwidth, the storage of traffic and intelligent traffic management to move large objects, video traffic – that’s a business we are very excited about,” Crowe said. “The growth is heroic, it’s triple-digit percentage, admittedly on top of a relatively small base. We don’t think that base is going to be small for long. What we now view as IP, internet broadband transport – will undergo a change. Given that video represents 50% of traffic and video files are extreme-sized, it will represent the vast majority of the traffic on the Internet. We are positioning ourselves because we think traffic will largely be about CDN [content delivery networks]. With our bandwidth, or storage and the intellectual property to do intelligent traffic management, we are in an almost unique position to benefit.”

Level 3 also announced changes in how it will report results to analysts beginning this quarter. The company will no longer list its top 10 customers, and it will report revenue by market group and core network services rather than by product. The change is a logical progression, Crowe said, and enables the company to focus results on where it is creating value.