Level 3 quietly forges ahead

At a time when mergers and acquisitions are common, some carriers are surprisingly quiet, choosing to expand via internal efforts rather than buying up infrastructure. Level 3 Communications has kept a steady course on the continued rollout of its network and supplemented the build with income from dark fiber deals.

The company, which has been quiet on the M&A front, revealed last week that it will take in more than $100 million under a dark fiber deal with CoreExpress, a provider of extranet services. CoreExpress plans to use the 23,000 miles of fiber under a 20-year deal as part of its national backbone network.

The fiber will be used to facilitate CoreExpress' Internet Data Exchange System, or iDES, which is a multi-ISP extranet platform. Using the platform, CoreExpress customers can carry out transactions, send sensitive data and share applications over the Internet, regardless of which ISPs are used, said Tony Zeis, executive vice president and chief technology officer of CoreExpress.

"With this platform, our customers will be able to get interconnections between ISPs with quality-of-service guarantees," Zeis said. Currently, those QOS guarantees cannot be made, Zeis said, but once CoreExpress turns up its service, that will change. The company plans to begin trials with customers in August.

For companies such as CoreExpress, the ability to purchase dark fiber from Level 3 enables a much faster time to market and several cost benefits.

The cost of lighting its own equipment was far less than leasing, Zeis said. In addition, "financing a facilities-based play is far easier than financing a non-facilities based play," he said.

And while CoreExpress views the dark fiber deal with Level 3 as a way to expand quickly, Level 3 views it as icing on the cake.

"It is really a supplement to our normal sales stream," said Mitch Moore, regional vice president of dark fiber sales for Level 3. "When we have an excess of capacity, we will definitely sell it."

Essentially, the dark fiber sales serve as a way to finance the continued network rollout for Level 3. The provider also has turned up two new metropolitan markets in Florida, Tampa and Orlando. This week, the company plans to announce the turn up of Newark and Jersey City, N.J.

And while many carriers are just now starting to make strides in metropolitan areas, Level 3 has been turning up those local networks since 1998, said Tim Dawson, regional director of sales for Level 3 (see table). In the case of Tampa and Orlando, Level 3 can migrate the traffic off leased local networks to Level 3's own network. Theoretically, the provider could then pass the cost savings on to its customers. That's because the facilities-based network is supposed to help deflate the overall cost of bandwidth.

Some analysts say the fact that Level 3 still leases much of its network from other carriers has most likely kept the provider out of M&As. In addition, the rather small number of customers compared with providers such as Qwest Communications has kept interest down.

"It is getting really hard to compare the players now," said Melanie Posey, analyst with IDC. "But Williams is Level 3's closest competitor, and they already have their network built."

Even though Level 3 gets lumped in with providers such as Qwest and Global Crossing, the company is likely to have a shorter customer list simply because of its wholesale emphasis, compared with other business models that include a retail business.

That wholesale basis brings customers to them rather than forcing the company to essentially "purchase customers" in the form of M&As, Posey said.

While others may have established networks, Dawson pointed out that starting with a clean slate has been, and will continue to be, a great benefit to Level 3. Throughout the buildout process, Level 3 has laid 10 to 12 conduits to provide for future upgrades and dark fiber sales.

"Providers such as WorldCom, AT&T and Sprint will put one conduit in the ground," Dawson said.

The network also is entirely IP-based, which customers will find attractive.

But some view the IP base as having little importance.

"No one really cares about everything being IP anymore," Posey said. "IP isn't the be all, end all. It can run over anything so it really doesn't matter if the transport is IP or not." Emphasizing the IP nature of its network also prevents Level 3 from offering services such as frame relay.