LVLT - Level 3

[Guest ValueCarl]

Brker_guy, Can we say, "AMEN!" Nice response by (3) tonight!  :)

 

“We look forward to working with Chairman Genachowski, the other Commissioners and staff, and with the DOJ to ensure that Comcast abides by the spirit and letter of the FCC order, and lives up to the promises and commitments it has made to the DOJ and FCC through the merger approval process – to operate in an open and non-discriminatory fashion.

 

“As we’ve previously noted, the objective of the FCC Open Internet Order is clear in its call for an open Internet – with rules against unfairly blocking content and unreasonable discrimination – to ensure that broadband providers cannot act as gatekeepers to companies providing competing content, services or applications to those providers’ customers. We urge the Commission to implement those rules and the conditions announced today on the NBCU transaction in a manner that preserves competition and maintains an open Internet – open to innovation, open to competition and open to consumer choice.”

 

http://finance.yahoo.com/news/Level-3-Communications-Issues-bw-1276134781.html?x=0&.v=1

[brker_guy]

AMEN to the PR from (3), Carl!  I saw it to via their email to me.

 

I went through my nightly reading routine tonight, and saw two articles that stood out:

 

http://www.latimes.com/business/la-fi-ct-media-econ-20110118,0,2086702.story

 

"Services such as Netflix Inc. are able to pump a carousel of movies instantly into the home via the Internet for only $8 a month. The popularity of the company's streaming service has skyrocketed: 66% of Netflix's 17 million subscribers use it, eliminating the need to receive DVDs in the mail through Netflix's trademark red envelopes or to run out to the corner video store."

 

http://tech.fortune.cnn.com/2011/01/03/what-the-hell-is-going-on-with-tv/

 

"Hastings has made a bet that every screen -- TV, iPad, phone -- will be a window to a software platform, a strategy that has operators of hugely profitable cable channels, folks like Bewkes, up in arms. Right now viewers can stream the service on more than 250 devices, including boxes we may already have in our living room, like that old TiVo or your daughter's Xbox, and boxes that are making their debut."

 

Just look at the AAPL's earnings tonight, gents.  The only way for AAPL to grow now is via "services" using their iTunes as the distribution platform...

 

 

 

 

[brker_guy]

Carl, don't know if you saw this, but this is an interesting article from Slate:

 

http://www.slate.com/id/2273314/

 

 

[Guest ValueCarl]

Thx Brker_guy.

 

Here's a favorable link back to you!

 

On January 18, 2011, Level 3 Communications, Inc. (the “Company”) received a notice (the “Notice”) from The Nasdaq Stock Market (“Nasdaq”) advising the Company that its common stock has regained compliance with the $1.00 per share minimum bid price required for continued listing on The Nasdaq Global Market as a result of the bid price of the Company’s common stock having closed at or above $1.00 per share for the ten consecutive trading days prior to the date of the Notice, pursuant to Nasdaq Marketplace Rule 5450(a)(1).  The Notice indicated that this matter is now closed.

 

http://www.sec.gov/Archives/edgar/data/794323/000110465911001923/a11-3031_48k.htm 

[Guest ValueCarl]

2010 Internet Data for Internet Data Hogs. Happy data mining!  ;)

 

 

What happened with the Internet in 2010?

 

How many websites were added? How many emails were sent? How many Internet users were there? This post will answer all of those questions and many, many more. If it’s stats you want, you’ve come to the right place.

 

We used a wide variety of sources from around the Web to put this post together. You can find the full list of source references at the bottom of the post if you’re interested. We here at Pingdom also did some additional calculations to get you even more numbers to chew on.

 

Prepare for a good kind of information overload.

 

 

http://royal.pingdom.com/2011/01/12/internet-2010-in-numbers/

 

 

 

 

 

[brker_guy]

Carl,

 

Did you get to download these documents on the side of this link for global broadband trends?

 

http://www.sandvine.com/news/global_broadband_trends.asp#Download

[Guest ValueCarl]

Bondholder redemption.

 

http://www.level3.com/index.cfm?pageID=491&PR=980

 

Level 3 Communications, Inc. (NASDAQ: LVLT) announced today that it called for redemption all of its outstanding $195,702,000 aggregate principal amount of 5.25% Convertible Senior Notes due 2011 at a price equal to 100.75% of the principal amount thereof. These notes mature on December 15, 2011. The redemption date is February 18, 2011.

 

 

[brker_guy]

Looks like VZ is about to have an army of lawyers in court soon to sue the FCC:

 

http://finance.yahoo.com/news/Verizon-challenges-net-rb-3997556302.html?x=0&sec=topStories&pos=8&asset=&ccode=

[brker_guy]

IV, this is a great link you sent.  Thanks for sharing it.

[Guest ValueCarl]

Our sleeping giant, seems to have awoken!  Sanjeev, was that you who deleted IV's more passionate posts on "consolidation" this morning with potentially flawed, not absolutely flawed, geometric links to Lou Simpson, i.e., If all of A equals B, and B equals C, then A&C must equal as well.....!    ;D I would like to pick up on that Lou Simpson "compensation scheme," if you would be so kind to put it up on the "General" tab? Since it originated from IV, I would prefer not to be so bold. Intrinsic Value, to watch VZ have their way as they indicated almost verbatim in Fall last year, by the FCC's own recently released "net neutrality rules," is an unbelievable contradiction as they look to a Republican dominated Congress to further protect their monopolies at this juncture.

 

The real strange thing that I saw recently, was Jay Rock, not the hip hopper, but the family dynasty depicted on the "Flintstones" cartoons when some here were kids, seems to be A O.K. with the FCC's current rules, but wanted them to go even further with wireless, that being, applying the same fixed wired rules to wireless. 

 

The creators of "The Twilight Zone" would be at a loss for creating a show like this one!  >:(   

 

 

Congress largely opposes the FCC's net neutrality rules

 

    * Patton Boggs LLP

    * Carly T. Didden, Jennifer A. Cetta, Monica S. Desai , Mark C. Ellison and Matthew B. Berry

    * USA

    *

    * January 10 2011

    * Patton Boggs LLP logo

 

Carly T. Didden Author page » Jennifer A. Cetta Author page » Monica S. Desai Author page » Mark C. Ellison Author page » Matthew B. Berry Author page »

 

In the weeks leading up to the FCC’s December Open Meetings, both Republican and Democratic members of Congress expressed opposition to or concern about Chairman Julius Genachowski’s proposed net neutrality rules. After the FCC’s vote, members quickly announced oversight hearings would be scheduled. 

 

House Energy & Commerce Committee Chairman Fred Upton (R-MI), and Reps. Lee Terry (R-NE) and Marsha Blackburn (R-TN), announced plans for an oversight hearing calling on the chairman and commissioners to explain the FCC’s authority to adopt the new rules. At the same time, Upton pledged to work on a legislative solution to overturn the rules. The members assert that the FCC’s new rules overreach, impede job creation and hinder investment in broadband. Upton said that this would be “the first hearing out of the box,” with additional hearings in the coming weeks.

 

In the Senate, Commerce Committee Chairman Jay Rockefeller (D-WV) supported the new rules, but noted that wireline broadband rules should apply equally to wireless providers. The Committee’s Ranking Member, Kay Bailey Hutchison (R-TX), intends to offer a resolution of disapproval on the FCC’s net neutrality order. A vote on such a resolution is not likely to occur until February.

 

Upton and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) also may investigate the procedure the chairman used to adopt the rules. There is concern that a final draft of the order was not available until 11:30 p.m. the night before the FCC Open Meeting, and that it contained substantive changes.

 

Rep. Ed Markey (D-MA) supported the order and called it “a step forward,” but he offered that the order should have banned paid prioritization, and the new rules should have applied equally to wireless and wireless providers. Rep. Maxine Waters (D-CA) and Rep. Bobby Rush (D-IL) expressed concern that the FCC’s net neutrality rules are “insufficient and harmful” because they would create a mobile digital divide. They noted the rules do not apply equally to wireline and wireless broadband networks, and wireless broadband networks are more widely used by minorities. Mobile broadband networks are not subject to the FCC’s unreasonable discrimination rule.   

[Guest ValueCarl]

Such a quiet board in the midst of such an interesting occurrence. Nice "swap" although I still would have preferred that "USURY RATE" convert being included in such power to "negotiate!"

 

Today's news is approx. a two percent "dilution" save on tomorrow's cash flows.

 

http://finance.yahoo.com/news/Level-3-Announces-Private-bw-4262002592.html?x=0&.v=1

 

As for government wins, I will get more excited with "FEDERAL" victories as opposed to "STATE." These silly people in D.C. are not saving my fellow Americans the fortune in communications savings they would be otherwise. Our D.C. Federal Market Group liaison, Morche, has not been hitting the ball at all lately! You have got to hit the ball to create action, Morche!    

 

http://finance.yahoo.com/news/North-Florida-Broadband-bw-4237461729.html?x=0&.v=1

[Cardboard]

I like the elimination of convertibles, although these are convertible at $9.99 which is way way out of the money. The ones called for redemption last week due in 2011 are convertible at $3.98.

 

So they keep pushing maturities out (2019 on both of these deals), but hurt their annual cash flow in the process. Looks like survival mode still, but at least they are trying to eliminate potential dilution if things improve materially and rapidly.

 

By the way, another interesting article showing that demand is exploding and coming from areas that no one foresaw.

 

http://www.pcworld.com/article/217473/puppy_cams_threaten_internet_cisco_says.html

 

Cardboard

[Myth465]

I like the elimination of convertibles, although these are convertible at $9.99 which is way way out of the money. The ones called for redemption last week due in 2011 are convertible at $3.98.

 

So they keep pushing maturities out (2019 on both of these deals), but hurt their annual cash flow in the process. Looks like survival mode still, but at least they are trying to eliminate potential dilution if things improve materially and rapidly.

 

By the way, another interesting article showing that demand is exploding and coming from areas that no one foresaw.

 

http://www.pcworld.com/article/217473/puppy_cams_threaten_internet_cisco_says.html

 

Cardboard

 

Thanks Cardboard.

 

Puppy CAMs Threaten internet. Thats very interesting.

 

No one has answered my question, why hasnt prior growth been converted to cash flows? I know there will be demand for bandwidth but so far it hasnt mattered much.

[brker_guy]

Cardboard, thanks for sharing the article. 

 

This is the trade-off that I told Carl about that my mother once said, "Pay now, or pay later".  I think LVLT is taking the view that traffic volume is about to take off.  So, I think they rather make the sacrifice and bite the bullets now rather suffer with the dilution or having to go through a reverse split after the dilution.  Needless to say, this exchange is good for us in the long-run.  You will find out more next Wed. when they report.

 

BTW: The link to the article you sent is more interesting:

 

http://www.networkworld.com/news/2011/010311-outlook-volume.html

 

We have Apple to thank for the mobile data surge, which ignited with the iPhone launch in 2007. The multimedia, bandwidth-intensive nature of smartphone apps that have rolled out since has sent mobile broadband operators scurrying to enhance network capacity to keep up. In turn, the mobile apps - now used by consumers and enterprises alike - are quick to fill those pipes right back up.

[Guest ValueCarl]

I don't know guys. The recent savings from dilution at approx. 78.5MM shares is a far cry from the 2013 fifteen percent interest converts turning into 222MM shares still. Without a more friendly, volunteer conversion at $1.80 to save interest before maturity, only a forced conversion tied to a $4.00 share price will begin saving the aggregate $145MM in interest at $60MM per year which is left.

 

More than likely, volunteers would raise their hands, if and when they believed an MNA would create more than four dollars price per share subsequent to making such a purchase.

 

Because that interest rate clock keeps ticking loud, the sooner such an event is executed, the better for long suffering equity owners. I am not endorsing to do so, just because, mind us, but to do so with clear results inuring to owners' in a worst case scenario while God is willing, even if the creek should rise! Where's Spike Lee?  ;D 

[Cardboard]

A price war is brewing with wireless.

 

http://money.cnn.com/2011/01/25/technology/verizon_iphone_plan/index.htm

 

Means less profits for wireless carriers, but more data to flow over the internet.

 

Cardboard

[Cardboard]

"why hasnt prior growth been converted to cash flows?"

 

It is a fair question Myth. The answer comes back to economic 101 or supply and demand. There was simply way too many pipes laid down 10 to 15 years ago for the flow of information. This has led to a massive bear market where most "independents" are now defunct. You had a massive price war in cost of delivery if you will with so much supply being available.

 

Imagine natural gas pipelines laid down in a 10 to 1 ratio of capacity vs flow, then add to this major technological advances to compress this gas. The growth rate in flow required to fill these pipelines would have had to be simply amazing to even come close after years. It is a simplified way to think about it.

 

What is amazing is that Level 3 has been able to survive as an independent by generating just enough cash flow to cover most costs: operating, interest and capex at a very low level of utilization of its "pipeline". It just shows how much of a cost advantage they have over the other 4 national networks: Verizon, AT&T, Sprint and Qwest who have tried to retain as much "flow" as possible on their networks. So at rock bottom delivery prices, they make enough cash to survive with a utilization rate in the 20 to 30% range?

 

In a way, it is the exact opposite of what you encounter in the oil & gas production business. The marginal producer or the one that delivers the last bit of oil to supply the market is the high cost producer. In this case, the marginal producer is the low cost producer. So unlike the marginal oil & gas producer, they don't need higher delivery prices to make money, they just need higher production or flow.

 

With broadband data flow still growing at a furious rate (Cisco offers a lot of evidence on this), speed of light and number of pipes out there being fixed and "data compression" being less and less practical, there is a point where their utilization rate goes up and cash flows directly with it. The issue has always been to pin point the timing, but I think that we are close if not there now.

 

On top of increased data flow, you also have the concept of "homes passed" which was a term used in the cable industry. They were slow to go there, but now they seem to have understood the benefits of linking directly to their network 100,000's of small, medium and large entities. That is a lot of heavy users bringing fresh flow to their network.

 

Cardboard

[Guest longinvestor]

A price war is brewing with wireless.

http://money.cnn.com/2011/01/25/technology/verizon_iphone_plan/index.htm

Means less profits for wireless carriers, but more data to flow over the internet.

Cardboard

 

What is amazing is that Level 3 has been able to survive as an independent by generating just enough cash flow to cover most costs: operating, interest and capex at a very low level of utilization of its "pipeline". It just shows how much of a cost advantage they have over the other 4 national networks: Verizon, AT&T, Sprint and Qwest who have tried to retain as much "flow" as possible on their networks. So at rock bottom delivery prices, they make enough cash to survive with a utilization rate in the 20 to 30% range

 

Any price competition in telecom, video, software delivery..that can ride the pipeline is playing into (3)'s hands. I don't need a spreadsheet to convince myself of this. My telephone bills 25 years ago was routinely $250 mainly due to international calls. Today it is $25 thanks to Vonage, MagicJack, Skype et al...all due to the low cost of (3)'s delivery. Video is going the same way with Netflix, Hulu, Youtube etc..matter of time. Cell phones will go the same way, Walmart is selling $40 all-you-can-eat-month-to-month plans.

 

I am yet to see any consumer industry dominated by anyone other than the lowest cost producer, be it retailing, airlines, auto....all driven by declining disposable incomes in the US & the western world.

 

(3) is a good business, you just need to be very patient. I wish I did not know about them until now. Prem got it right .

 

 

[Myth465]

Thanks Cardboard, finally a logical answer. Thanks for the pipeline analogy, it really helps.

 

I figure LVLT is worth $1 or $20 if not more. I also think one can wait until CF increases and probably get in at $3. That could be wrong with every new contract giving us 10% moves in the stock price. Its an awesome story, based on my WDC research these guys should be big winners once pipelines get full. What do you think is the best way to get up to speed with LVLT, this thread is less than helpful. Though there is a decent discussion going on regarding the open web / net neutrality debate.

 

I am new to the game and have no legacy losses  :D. I also think this could be my general growth. I however dont want to be 5 years too early, like just about everyone else was  ;D.

[Guest ValueCarl]

Damn MYTH! You sound like Buffett and The California Redwoods!

 

Get a grip on yourself! Got any GOVERNMENT CONNECTIONS beyond CANADA?

 

<I figure LVLT is worth $1 or $20 if not more.>

[Cardboard]

"What do you think is the best way to get up to speed with LVLT, this thread is less than helpful."

 

I would say read the last 10Q, listen to the conference call and accompanying presentation. Then do the same for the coming report. Watch for improvements in sales and cash flows. If the improvements are not there, then it is likely that the stock will drag its feet until the next earnings report or 1st quarter when additional sales from the Netflix contract will start to appear.

 

You may be right to wait to see improvements first. I was in 6-12 months too early. So far so good since I completed my position at a lower price and I am now showing a slight gain. I consider myself very lucky compared to the poor fellows who have been waiting for improvements for a long time. I would hate having to wait much longer, however it is a possibility. At least what reassures me is that the environment is of secular growth and not decline.

 

After having experienced the ATSG saga, I see where you are coming from. So much for asset values protecting the share price... So improvements should take a while to get reflected in the stock price if and when they occur. Of course, unless someone shows up at the door with an offer.

 

Southeastern Asset seems pretty tired of waiting and they will force something to occur one way or another: growth in cash flow or liquidation. I have never seem them as activists, so the recent comment is quite telling.

 

Cardboard

[Guest ValueCarl]

Hey MYTH, it sounds like you can teach this thread a lot too. Bring it on!  ;)

 

<Its an awesome story, based on my WDC research these guys should be big winners once pipelines get full.>

[Myth465]

Humm I dont blame them. This story has been going for 10 years, VIC has 3 longs and all of them are down 90% +. Its a hairy situation. I have been downloading video for years online and know that it will choke pipelines when every tom dick and harry follow suite. I also know Facebook, Phones, and VOIP have to consuming space.

 

I didnt even factor in things such as puppy and nanny cams. As you said with ATSG, one could have put 10% - 20% of the fund in that stock at $2 once a contract was signed. It was easy to see than that ATSG was worth $6, and its easy to see now that number is far too low and its perhaps worth $10 - $16.

 

I owned shares down to 16 cents, but would have preferred to just have watched and followed and bought at $2.5 or so. I hope to do the same with LVLT. Once we get a decent but growing FCF number it will be off to the races. I like the story and will take your advice. I figure as long as I get in under$2 or $3, I should do quite well. I also figure I will have far better time adjusted numbers then most of the long timers.

 

I wish they had some convertible debt with extremely low strike points. That seems to be the best way to play it. I havent looked to hard, but all conversions seem to be much higher.

 

 

----

 

Value Carl here is some of the details from WDC.

 

http://www.wdc.com/wdproducts/library/company/investor/CES2011_Final_IR.pdf

 

This one is particularly interesting - http://products.wdc.com/library/company/investor/wd_1215pm_needham_final.pdf

 

All of this data flows right through these pipelines. Also people generally download movies at 700 mb to 1.3 Gigs. As more and more start to legally download on bigger and bigger screens the size gets crazy. Once everyone gets on board with Dvds downloads at 4.65 Gigs, they will then switch to Blueray or another high quality format. Thats a hell of a lot of storage and bandwidth space required.

 

For me I am just trying to understand how this translate for LVLT and when it turns into cash in the bank.

[txlaw]

That's funny, Myth.  With ATSG, I took the wait and see approach and missed out on the crazy cheap bottom, but I still made a damn good return entering in at sub-$2. 

 

With LVLT, on the other hand, you're waiting and I've taken a small position at a cost basis of $0.97.  Seems like we've switched off on our approach to entering into positions  ;D.

 

I would also go to Seeking Alpha and read some earlier CC transcripts to get a feel for the company and to get some interesting tidbits on capex requirements.  Definitely pay attention to the contribution margins and the mix of businesses going forward.  With the next quarter, we'll get some more clarity on whether we will truly start to enter the "hockey stick" growth phase.  Having said that, don't model based on hockey stick growth!  (Still want that MOS.)

 

I haven't had time, but I plan on going through AKAM and LLNW's filings to drill down more on the CDN business. 

 

 

 

 

 

 

[Guest ValueCarl]

MYTH! Welcome aboard the Level 3 freight train to places where no train has ever traveled! Thanks for sharing! Our boyz including Big Prem will get us to copious cash flows, one day sooner rather than later. There are times when even men like Buffett, have to BELIEVE.  ;D 

 

Try not to fret those free loaders at Akamai as much as some might want you to. It's all in this cult like "management team."