Level 3 sells $700m in dark fiber

(Telephony)Level 3 Communications announced today that it recently has signed more than $700 million in dark fiber sales and services contracts, bringing the year’s total to upwards of $2 billion.

Two of the most significant of these contracts are with competitive local exchange carriers (CLECs) XO Communications and McLeodUSA.

XO purchased dark fiber on Level 3’s inter-city network in Western Europe. The purchase, which gives XO approximately 3700 route miles in Europe connecting 21 cities, is part of the CLECs new European data strategy.

XO plans on shifting its European revenues from primarily voice to primarily data, divided into network access, Internet access and data services such as hosting, security and virtual private networks.

Initially, XO will focus on five countries and four cities: United Kingdom with the focus on London, France focusing on France, Germany focusing on Frankfurt, Belgium focusing on Brussels and the Netherlands.

“Our number one task is to transition the existing concentric business into the higher margin customers and products,” said Mike Reid, President and managing director of XO’s European operations. “Our second thrust will be to focus on the high growth areas, particularly where our network has taken us.”

For McLeod, the purchase is part of a plan announced earlier this month to employ a mesh switch platform across a 31,000-route-mile network, dubbed a “next generation” network by the company.

The network, which should be fully operational in two years, will terminate traffic via physical points of presence in more than 50 U.S. cities and carry both IP and ATM traffic as overlay networks.

All the contracts contained in this announcement should provide an influx of cash to Level 3. Though revenues from the deals, which generally run 15 to 20 years, are recognized over the lives of the contracts, payments are made as fiber segments are delivered to customers. These deliveries generally occur early in the terms of the contracts.

Though a Level 3 spokesman stated that his company was not selling the dark fiber out of a desperate need for capital, the immediate realization of revenues add to the appeal of the contracts.

“What’s attractive about these agreements is that they are good sources of cash even though they are recognized over the terms of the agreement,” he said.