Level Builds European Momentum

Two announcements by Level 3 Communications (NYSE:LVLT, news, filings) this week show the two sides of Level 3’s efforts to boost its growth in Europe in what has been a very persistetly tough economic environment.

Of the various assets acquired by Level 3 in the Global Crossing deal, the UK business had been the most mature but also lately the most difficult to grow, as older UK government contracts had been expiring and only been partially replaced.  Today Level 3 announced a key piece of the key UK government strategy going forward: it has been named as one of the strategic suppliers to the new PSN Connectivity Framework. The PSN Connectivity Framework is the conduit through which agencies buy secure LAN and WAN pipes, and hopes to save £130M over the old way of doing things.  Being on-board will help Level 3 stabilize its UK government revenue stream while it develops a more robust enterprise business in parallel.

And across the English Channel where Level 3’s business has more of a wholesale IP and transport tilt, they picked up a new French media services provider as a customer. Paris-based Hexaglobe will be using their high-speed IP services to power its on-demand video and content management services. The growth in IP-based video is bringing with it large and unpredictable traffic spikes that require rapid adjustments. And it’s interesting that Level 3’s CDN wasn’t part of this particular media/video announcement, it’s the core IP network that was featured. Level 3’s total European presence right now is weighted heavily toward the UK, but it probably has the most growth potential on the mainland.

This quarter has seen analysts (and bloggers) earnestly making both the bear and bull cases for Level 3, but I doubt anything will be resolved when they report in two weeks. The true effects of the shift in the numbers from the integration and continued organic growth should start to become clearer in the second half.

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Categories: Internet Backbones