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Here is an interesting report on Level 3 (LLL) with implications for AOL.
LLL has been on quite a run for almost a year. It might be time to lighten
up or watch for shorting opportunities.
Good luck and good trading,
Ray Raffurty
Level 3 said today that it is in danger of losing up to $150 million in
revenue as its largest managed modem customer, America Online, cuts back on
services from the wholesale carrier.
"AOL has recently notified [Level 3] of their intent to reduce overall
purchases of dial-up capacity and to proportionately reduce purchases from
the company," Level 3 CEO James Crowe said in a statement today. "While
[Level 3] has not yet received formal notification of this reduction and
thus is unable to estimate the financial impact with accuracy, we believe
the impact of this reduction and other factors could result in a
year-over-year reduction of $100 million to $150 million in our managed
modem-related revenue, of which the substantial majority would result from
potential AOL actions. While the company expects continuing reductions in
managed modem related revenue, future decreases are expected to be more
gradual and in line with overall market declines."
The value of the managed modem business, which is handled by bankrupt
competitive local exchange carrier Allegiance Telecom, was one of the
reasons why analysts and industry observers expected Level 3 to make a bid
for all or part of Allegiance's assets in an auction to be held this month.
In January, Level 3 filed an objection to the initial bid for Allegiance's
assets, a $390-million offer from Level 3's rival, Qwest Communications.
Sources familiar with Level 3 have long argued that Level 3 would rather
bring the Allegiance managed modem business in-house, but Crowe has admitted
in previous earnings calls that the AOL dial-up account is "not a growth
business."
"We have previously stated that we expect the company's positive overall
trend experienced in consolidated free cash flow to continue," Crowe said.
"However, if the potential reduction in managed modem related revenue occurs
as described above, we expect that consolidated free cash flow will decline
by between approximately $40 million and $60 million year over year."
© 2004, Primedia Business Magazines and Media, a PRIMEDIA company. All
rights reserved. This article is protected by United States copyright and
other intellectual property laws and may not be reproduced, rewritten,
distributed, redisseminated, transmitted, displayed, published or broadcast,
directly or indirectly, in any medium without the prior written permission
of PRIMEDIA Business Corp.
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