LVLT - Level 3

[brker_guy]

Encoding at 4.8Mbps and stream is not what I call HD, but here they are calling HD.  Amazing!  The world must have changed a lot since I last worked with digital video since I never thought I left that industry as I am still doing what I love with HD video everyday. :-) :-)

 

BTW:  Carl, this article by the FOOL.BOMB is annoying the hell out of me.  Check out the audacity of thes guys:

 

http://www.fool.com/investing/general/2011/01/27/netflix-eats-your-shorts.aspx

 

Besides taking cheap shots at my friend, Whitney, they said this:

 

Finally, Hastings notes that Netflix video may indeed be a major consumer of Internet bandwidth to our homes, but that it doesn't create much of a load on the backbone infrastructure. Since the video streams are handled by the distributed networks of content delivery servers managed by Akamai Systems (Nasdaq: AKAM), Level 3 Networks (Nasdaq: LVLT), and Limelight Networks (Nasdaq: LLNW), very little traffic passes beyond their regional traffic centers.

 

When exactly did NFLX let AKAM back into the video distribution game?  Man, a bunch of liars those FOOL.BOMB!

[Guest ValueCarl]

We have always seen their foolish bias towards AKAM, Brker_guy, so seeing them place Akamai in the lead position of their article is not surprising. As for Whitney, my only experience has been seeing him lob softball questions to Mr. Munger, always running up to the podium like a little school boy; attempting to be the first one served on the lunch line. I think he may get a medal from Mr. Munger later, for being such a compliant servant. Just my opinion, of course. 

 

Netflix hasn't been more committed to (3) than they might be otherwise, considering the fight taking place with Comcast. This is what they said in their streaming assessment commentary earlier.

 

<As we use a number of CDNs, and our clients can adapt to changing network conditions by selecting the network path that’s currently giving them the best throughput, Netflix streaming performance ends up being an interesting way to measure sustained throughput available from a given ISP over time, and therefore the quality of Netflix streaming that ISP is providing to our subscribers. Obviously, this can vary by network technology (e.g. DSL, Cable), region, etc., but it's a great high-level view of Netflix performance across a large number of individual streaming sessions.>

 

 

 

[dolce2think]

I have a few questions to our two valuable technology experts:

 

1) You stated that distributing video is different, in the sense that (3) has the advantage over the "server farms" and over Akamai.

    The recent netflix deal indicates this. Technically, what would do to change these economics around? If the price/performance

    of accelerating (i.e. CPU power) and storing (on the server) changes, could this again lead to less "longhaul" traffic?

 

2) As I understand it, currently there is overcapacity in long haul, but the metro lines are getting more "full". And obviously, the

    last bottleneck is the last mile, where the monopolists try to limit the speed for various reasons (as you explained).

    So, if the internet use (video) takes off here, would it not be necessary to expand the metro lines, before (3) can even think

    of a "full" backbone?

 

3) From Teleography Research (only international data are feely available), one can see, that capacity utilization (as per 2008),

    has only hovered around 30%. The study also shows declining prices per Mbps per month, for example prices in New

    York fell from 28 USD to 10USD over a 3 year period from 2005 to 2008.

    One can see however, that the growth in traffic volume has outpaced the fall in prices.

    So where have the revenues gone? All into the metro lines? Or have the other backbone networks grown their revenues

    but (3) could not?

 

4) Teleography Research shows rising total capacity installed, rising roughly at the same speed as traffic growth during 2002 till 2008.

    I wonder why there has been added so much capacity after the "collapse of 2000-02". Is this only internationally added (where

    the internet took off later)? Or is this just added metro lines?

 

5) I also wonder about this statement: "data compression is aproaching limits".

    What about rising speed per one node of fiber? I guess the light can flash much faster today then 10 years ago?

    How much has this contributed to the "capacity extension" we have seen over the last couple of years?

    If data volume grows at 40%, this means it doubles every 2 years. If we held all the other things constant, then

    todays 30% means only 7.5% in 2006, 2% in 2002. The data do not support this. Something is missing.

 

6) In the keynote speech, Crowe gave us some numbers, which means there is roughly 100 to 120 Tbps in

    "industry capacity" installed. Is this just US data or worldwide?

    Streaming truly HD (at 20Mbps) would mean, just about 5 mio users could do it at the same time?

    This seams very close to becoming reality, very soon? Am I missing something?

    Further he says (3) could increase their capability by filling all 12 conduits, then they would have

    7500 Tbps in capacity. Now this huge increase mainly stems from adding more fibres into one conduit.

    Could the other operators not just do the same? I mean, even if they don't have free conduits, they

    still could multiply their capacity?

 

A lot of questions I know. You two did such a great job on this board, I am sure you can answer at least

some of my questions. I currently hold a smallish position in (3) and am trying to get more comfortable.

Thanks

 

dolce

[Guest ValueCarl]

Hi Dolce2think. I'll defer to Brker_guy on all of your deep probing questions-assuming you were referring to me at all-because I am hardly a tech expert especially compared to him, and more of a trend watcher with things that are internet related.

 

I would encourage you to read Cardboard's post and pipe analogy with respect to supply/demand factors and where the revenues may be, as it remains outstanding. Predicting the inevitable inflexion point as respects all the moving parts like silicon economics tied to this investment story, continues to be very "tricky," and almost always "elusive."

 

For investors in this security, we must continue to "think sweet thoughts" like your name implies.

 

The key to this enterprise is clearly the speed at which CNS compounds moving ahead. Rob Powell presents an excellent overview of what one might expect on Wednesday here:

 

http://www.telecomramblings.com/2011/01/level-3-earnings-primer-q42010/ 

[brker_guy]

Wow, Dolce, you sure have a lot of thought provoking questions and they are long too!  Not to annoy anyone here in the future and have our board moderator toss you overboard, can you just sprinkle a few questions here and there?  One has to cover a lot of ground here with your questions.  So, let me take a few questions ok?

 

1) & 2)  Regarding the economic of video distribution, someone like (3) has a tremendous advantage over guys like AKAM and LLNW.  In the traditional CDN space, you have text and graphics, and you try to have these websites response as fast as possible and user-friendly as possible.  So, a typical CDN vendor would have smart softwares and algorithms running on their server farms to accelerate these contents.  When you get to video, videos need to be encoded, need to be archived and need to be distributed when users request a stream.  Video encoding is part science and part artform.  So, with the Vyvyx asset that (3) has, there is one advantage for (3).  Hosting these videos require servers, CPUs, and memories.  We both know that (3) owns 7.2mil sq. ft. of real estate.  Guys like AKAM and LLNW need to lease space on data centers to host their contents.  Advantage #2 for (3).  Then, there is the business of distribution.  Owning a backbone like (3) does give them a HUGE COST ADVANTAGE compared to guys like AKAM and LLNW.  Those guys have to buy or lease fiber access, not only for the last mile, but for the long-haul to transmit these contents to users in Canada when a stream is requested there.  So, how many toll booths would AKAM or LLNW has to go through to be profitable.  So, with (3)'s backbone, that's advantage #3 for (3).

 

3) Revenues in the backbone business have been growing.  With (3), it was a integration problem of their 7 acquistions that slowed them down.

 

4)  During the tech bubble days, there were WAY TOO MANY fiber dreamers and looters running around thinking that they can own the information superhighway.  Just ask Scott Sullivan, Bernie Ebbers, Joe Nacchio & the looters from Qwest(BTW: have you seen a Qwest commercial lately?), the looters from GLBC and the looters from XO or Metromedia Fiber etc...

 

5)  Data compression technologies are slowly approaching limits.  The best video video compression algorithm today is H.264.  I don't think we will be seeing another video codec standard for at least another 5-10 years.

 

6)  Not sure what speech you are referring to there on Crowe's comments.  I would gues that it's worldwide capacity, but I am not 100% sure. 

 

quote]Streaming truly HD (at 20Mbps) would mean, just about 5 mio users could do it at the same time? This seams very close to becoming reality, very soon? Am I missing something?[

 

This FAR from reality.  Look at the streaming rate that NFLX is claiming to be HD:

 

http://techblog.netflix.com/2011/01/netflix-performance-on-top-isp-networks.html

 

Currently, our top HD streams are about 4800 kilobits per second.

 

As you can see, NFLX is FAR FROM reaching 20Mbps per Full HD stream:

 

http://en.wikipedia.org/wiki/Bit_rate

 

Video16 kbit/s – videophone quality (minimum necessary for a consumer-acceptable "talking head" picture using various video compression schemes)

128 – 384 kbit/s – business-oriented videoconferencing quality using video compression

1.15 Mbit/s max – VCD quality (using MPEG1 compression)[6]

3.5 Mbit/s typ - Standard-definition television quality (with bit-rate reduction from MPEG-2 compression)

9.8 Mbit/s max – DVD (using MPEG2 compression)[7]

8 to 15 Mbit/s typ – HDTV quality (with bit-rate reduction from MPEG-4 AVC compression)

19 Mbit/s approximate - HDV 720p (using MPEG2 compression)[8]

24 Mbit/s max - AVCHD (using MPEG4 AVC compression)[9]

25 Mbit/s approximate - HDV 1080i (using MPEG2 compression)[10]

29.4 Mbit/s max – HD DVD

40 Mbit/s max – Blu-ray Disc (using MPEG2, AVC or VC-1 compression)[11]

 

 

[Guest ValueCarl]

This is why I refer to Mr. Watsa as Big Prem. I don't know if he stands as tall as Mohnish Pabrai, but his financing capabilities are very large indeed.  ;D This had been researched correctly when the swap was first announced, and is now confirmed.

 

http://www.sec.gov/Archives/edgar/data/794323/000120919111005846/xslF345X03/c11667_4x0.xml

 

2. $294,732,000 aggregate principal amount of Notes were disposed of in exchange for $300,217,000 aggregate principal amount of 11.875% Senior Notes due 2019 of Level 3 Communications Inc. and a net accrued interest payment of $6,622,003.

 

Brker-guy, thanks for addressing our "sweet 2 think" board member with so much technology "color." You are a breath of fresh air compared to many other venues I have traveled over way too many years. BTW, I recall leading what had become an apparent miscreant to Jim Crowe's May, 2010, CDN keynote speech as part of Dan Rayburn's annual presentation. As a result of that math, there are some great expectations to be realized and discounted into tomorrow at least based upon today's rates when those PIPES begin getting FIRED UP!  ;D  

 

Sanjeev wouldn't really boot him if he asked too many questions, would he?  :D  If there is one fact that I can attest to with respect to our board host, he never complains about being asked too many questions, at least from yours truly, that is.  

[dolce2think]

I hope I did not overwhelm you with so many questions. I was overwhelmed by all the "moving parts" when researching (3).

Thank you for sharing your deep tech knowlegde brker.

 

The speech I was referring to was the one from Dan Rayburn's summit. It is there were Crowe mentioned some industry numbers.

I also think this is worldwide. Teleography research shows only 10 Tbps installed as per 2008. This has gone up, maybe even doubled I guess,

but it is nowhere near the 120 Tbps mentioned. I guess he was including all the unlit fibres, that are already there. If so this would explain

a lot. And it would make me quite bullish, even with so many moving parts.

 

Since you are quite sure, that there won't be a new video format for quite some time, the only way that the installed capacity can increase

without high CAPEX seems to be the speed achieved per one fibre. Has this gone up in the recent years? Are we aproaching limits as well?

 

dolce

 

btw my name also implies, that it is sweet to do some thinking  :)

One should be generous with his phantasy when buying, but cold rational when selling, especially regarding (3).

[Guest ValueCarl]

There's Morche opening up those government accounts with "the network partner you can rely on." For what it's worth, this is typically an Akamai strength in cdn, i.e. hosting web sites and speeding through web pages. imo  

 

“The public looks to the FBI’s website for timely, important information, which is why it is critical for the website to be fast and easy to navigate, easy to manage, and cost-effective – and that’s exactly what we delivered,” said Edward Morche, senior vice president of Federal Markets for Level 3. “Beyond enhancing their website performance while reducing their costs, we’ve also given the FBI the exceptionally high level of responsiveness they wanted.”

 

http://www.level3.com/index.cfm?pageID=491&PR=985

 

 

 

[brker_guy]

Dolce,  I can tell you that at the rate we are signing up people to smart phone plans and OTT(Over-The-Top) contents like video streaming, we will be hitting capacity soon.  If a vendor like NFLX or Youtube does FULL HD (20Mbps) per stream, definitely, we are looking at a major bandwidth bottleneck.

 

http://en.wikipedia.org/wiki/High-definition_video

 

World Wide Web HD resolutionsSource Codec Highest resolution (W×H) Total bit rate/bandwidth Video bit rate Audio bit rate

Amazon Video On Demand (formerly "Unbox") VC-1[3] 1,280×720[4] 2.5 Mbit/s[4] 

BBC iPlayer H.264[5] 1,280×720[6] 3.2 Mbit/s[5] 3 Mbit/s[5] 192 kbit/s[5]

Blockbuster Online     

CBS.com/TV.com (720p)  1,280×720[7] 2.5 Mbit/s[7] 

CBS.com/TV.com (1080p)  1,920×1,080[7] 3.5 Mbit/s[7] 

Hulu On2 Flash VP6[8] 1,280×720[9] 2.5 Mbit/s[10] 

iPlayerHD FLV, Quicktime H.264, MP4 H.264[11] 1,920×1,080[12]  5 Mbit/s[13] 

iTunes/Apple TV QuickTime H.264[14] 1,280×720[14] 4Mbps[15] 

Netflix Watch Instantly VC-1[16] 1,280×720[17] 5 Mbit/s[18] 2.6 Mbit/s and 3.8 Mbit/s[19] 

PlayStationStore Movies & TV Shows H.264/MPEG-4 AVC[20] 1,920×1,080[20]  8 Mbit/s[20] 256 kbit/s[20]

Vimeo H.264[21] 1,920×1,080[22]  4 Mbit/s[23] 320 kbit/s[24]

Vudu H.264[25] 1,920×1,080[26] 4.5 Mbit/s[27] 

Zune Video (formerly "Xbox Live Marketplace Video Store")  1,920×1,080[28] 3 Mbit/s[29] 

YouTube H.264/MPEG-4 AVC 4,096x3,072[30]  6.5 Mbit/s max. 119 kbit/s

 

But brace yourself for Ultra-High Def:

 

http://en.wikipedia.org/wiki/Ultra_High_Definition_Television

 

Finally, as I was explaining to you yesterday of owning a backbone give you an advantage in CDN, here is proof why:

 

http://www.telecomramblings.com/2011/02/akamai-france-and-caching/#more-9870

 

AKAM got booted for leeching on FT's network.  Keep in mind, FT is a customer of LVLT.

 

 

[Guest ValueCarl]

A pox on the homes of these damn leeches and free loaders of the internet limited in their capacity to add my eyes into this crucial equation going forward! But let the same pox fall on the homes of those, who without added expense, attempt to gouge global citizens of the internet. >:(

 

Tomorrow, I will be focusing on CNS numbers as a harbinger of what is to come in the life of (3). My personal expectations are for three percent qoq.

 

"Bring it on!"  ;D    

[brker_guy]

This is a GREAT report by CSCO:

 

http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html

 

Worldwide mobile data traffic will increase another 26x by 2015!

 

I also heard Paul Jacobs of QCOM on CNBC right before Mr. Market closed.  He said that THIS YEAR ALONE, we shall have 440 MILLION smart phones sold worldwide.  That's a scary number if you just take into acount 2GB per phone per month on their data cap usage.

[brker_guy]

Carl, looks like the consolidation in the CDN space is about to begin.  First it was Tata taking out EdgeCast, and now TWC taking out Navisite:

 

http://finance.yahoo.com/news/Time-Warner-Cable-to-Acquire-bw-1787148828.html?x=0&.v=1

 

 

[Guest ValueCarl]

What will be most interesting as this cdn saga unfolds, is who ends up getting Akamai and Limelight understanding the economic disadvantages you reiterated by teaching our sweet thinker about it again, as part of your answers to his or her query.  

 

I believe Comcast and Time Warner Cable made cross licensing content PEACE across each other's networks today, also. Apparently, they won't attempt to gouge each other for one or the other's content.     

[dolce2think]

Brker, I start seeing the coming crunch you are talking about.

Do you have any insight on Wavelength Division Multiplexing (WDM)?

When I combine this "jump" in capacity after applying WDM and the huge amount of dark fiber installed by the "shennigans", I think the

industry data Crowe is talking makes sense.

 

http://en.wikipedia.org/wiki/Dark_fiber

"The availability of wavelength-division multiplexing further reduced the demand for fibre by increasing the capacity that could be placed on a single fibre by a factor of as much as 100. As a result, the wholesale price of data traffic collapsed. A number of these companies filed for bankruptcy protection as a result."

 

Today the standard rate per fibre is around 1.5Tbps. Yet there are tests with 10 times as much:

 

http://www.theinquirer.net/inquirer/news/1556579/alcatel-lucent-breaks-optical-transmission-barrier#ixzz1CmbskL1W

Do you think this could change the thesis? It seems to be a race between the adoption of SD (or HD tomorrow) streaming and the improvement in WDM.

 

dolce

[Myth465]

This bothers me.

 

“In 2011, the company expects GAAP interest expense of approximately $615 million and net cash interest expense of approximately $555 million. We expect capital expenditures to be approximately 12 percent of Communications revenue, and we expect Free Cash Flow for the full year 2011 to be negative.”

 

[Guest valueInv]

This is a GREAT report by CSCO:

 

http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html

 

Worldwide mobile data traffic will increase another 26x by 2015!

 

I also heard Paul Jacobs of QCOM on CNBC right before Mr. Market closed.  He said that THIS YEAR ALONE, we shall have 440 MILLION smart phones sold worldwide.  That's a scary number if you just take into acount 2GB per phone per month on their data cap usage.

 

2 GB per phone is very high. Average per month consumption is between 200 MB to 500 MB .

[brker_guy]

Dolce,  I used to be a shareholder of CIEN during the tech bubble days.  I can tell you that there has been a lot of promise for DWDM for long haul transport as the carriers are scaling out SONET.  At the time, CIEN has best of breed DWDM technologies.  I haven't followed that market much these days because not too many people are deploying long haul networks anymore.  The niche and growth are in the metro space.  In the next few years, I think you will see good growth in the metro market.

 

ValueInv, the reason why I used 2GB is because the carriers (T-Rex and VZ) are capping you at 2GB.  Recently, I posted a wireless usage pattern of a technical peers that I know:

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3195" data-ipsquote-contentclass="forums_Topic" 34123#msg34123

 

Myth, I had a similar thought this morning too when I saw that statment:

 

“In 2011, the company expects GAAP interest expense of approximately $615 million and net cash interest expense of approximately $555 million. We expect capital expenditures to be approximately 12 percent of Communications revenue, and we expect Free Cash Flow for the full year 2011 to be negative.”

 

I then thought about it some more, and came up with this logic.  I think management is planning for some kind of an acquisition this year.  That's the only explanation for FCF to be negative.  That is pure conjecture on my part.  I have no proof to it.

[brker_guy]

Carl, I saw your comments over at Rob's place.  I feel you, my LVLT friend.  I went to see Charlie today at the DJCO annual meeting.  So, when I saw your comments about insanity and Charlie, I had to send you this post.  I don't know if you ever had to deal with the US Govt before on any contracts, but I can tell you from experience that it's a nightmare to do so.  Govt work is extremely lumpy. 

 

That leads me to tell you one story that I learned from the DJCO annual meeting today.  DJCO's economic is changing in front of them before their very eyes.  So, they have to change or die by going into the software business for the court system.  Anyway, Charlie was amazed at the way putting out RFPs to procure office softwares.  Imagine that for a minute.  Putting out RFPs for software? 

 

So, can you imagine the insanity?

[dolce2think]

Brker, I will have to dig deeper here. I think this is the only constant that could change the thesis, even if only pushing the timeframe further out.

It seems that you suggest, that DWDM is only beeing installed as someone builds new capacity. I guess it would be a substantial effort to upgrade the

existing lines?

If the metro lines expand, this is very positive for (3).

 

Yesterdays call provided some interesting details.

"I'll provide an advertisement for Cisco's Visual Networking Index. If you simply type that term, Visual Networking Index into Google or your favorite search engine, you'll get the site and the statistics, which last year were actually a bit conservative in terms of the trends they identified".

 

I think Cisco could be too conservative, if one assumes that video usage follows an S-Curve which is now hitting the accelerating phase.

As Netflix states in his quarterly, they are now hitting accelerating subscriber additions plus they go international as well. As Netflix et al. purchase more and

more content, the amount of time spent on Netflix per user should go up as well. Currently there are only 2.5% of their users streaming simultaneously during

pek times, and yet it is claimed to be 20% of IP traffic. An assumption, that there will be 3 to 5 mio simultaneous streams at (then) say 10Mbps 3 years from today

is not unthinkable, maybe even quite likely. This would dwarf any estimates for (3).

 

dolce

[Guest ValueCarl]

Besides the abysmal top line growth net of churns while Crowing about astronomical growth embedded within their numbers, especially CDN, this is where my laser beam focused upon closer to Myth's paste.

 

In 2011, the company expects GAAP interest expense of approximately $615 million and net cash interest expense of approximately $555 million.

 

Now, because "money is never a problem for (3)," I am supposed to be happy about Big Prem and his crew eating every morsel of food and what isn't there on my table! If I didn't know better, I would think these people were more interested in establishing wastelands than valuable businesses based upon fair and friendly approaches.

 

But hark, matie, I hear Crowe is being more "OPTIMISTIC" than when he first began trumpeting the great "VISUAL INTERNET" almost THIRTEEN FRICKEN years ago now!  

 

As a result, I remain patient waiting for him to apply his hardly earned BONEUS money in accordance with his BIG MOUTH for purchasing stock very soon now that his mansion mess is fixed, or is it? If he doesn't, and I was on his board, I would motion to FIRE HIM in a heart beat!

 

In addition, his trusty partner, Sunit, with ties to smart money is also WAXING on about "SIGNIFICANT" ON NET building additions this year. You know, those one hundred thousand buildings which are just 500' away from the (3) network, whereby approx. 8K already exist on today's books.  

 

That COSTS a hell of a lot of DINEROS which has to come from somewhere! Back to Big Prem, or maybe some other hidden player, eating my lunch as well as the lunch of other less privileged toilet paper owners.  

 

If not for the high returns on such capital allocation techniques, I would have downsized yesterday. Brker_guy, do you remember those tough guy kids in the cafeteria who used to steal your lunch money to get theirs FREE?  >:(  Only people with "skin in the game," will fight for rights and stand up against tyranny.        

 

 

 

[Guest ValueCarl]

Brker_guy, I believe I caught Sunit doing yet another Britney Spears on the conference when he said, "Core network services sales were up seven percent sequentially in the fourth quarter"....

 

He must have been reading from the European line, above Core Network Services, when making this error. This is too big an error to be mistaken about, especially from the CFO! It was my understanding that Crowe had the brain surgery, not Sunit!

 

On the other hand, considering that "we don't sell cotton candy" it should have been SEVEN PERCENT sequentially!!!!!!!

 

Where the heck is this STOREY going except into institution pocketbooks in the form of interest on debt?

 

   

[Guest ValueCarl]

This has also been a major bone of contention with these managers, the fact that they believe in quoting numbers prior to recognizing "CHURN" bringing those numbers down! So, supposedly that's behind us next quarter pointing to FIXED SYSTEMS, we may not see because there is always a NEW EXCUSE with (3).

 

Nebulous numbers should not be tolerated from these people.

 

The other thing is when you're compounding quarterly to annual growth rates based upon results, rounding the factual percentage number to two percent will translate to a MOUNTAIN of LOST CASH annually over years.

 

Sunit needs to stop doing that too! imo 

[txlaw]

Could the negative free cash flow forecast be in anticipation of adding a large customer build that is being negotiated at the moment?

 

I know that Amazon is rumored to be offering a service that will compete with Netflix.  I do not believe Amazon's CDN offering is good enough to support such service, so they will have to partner with someone.  If Level 3 truly is the low cost provider, one would think that Amazon would consider partnering with Level 3 and perhaps a Limelight (as Netflix did).

 

Come to think of it -- this is a question for Carl and Brker-guy -- given Amazon's AWS business prospects, why wouldn't Amazon consider purchasing Level 3 to be able to provide the lowest cost IaaS offering in the market?  Especially since video and other large data will be a growing part of the Internet services mentioned in the conference call? 

 

If I were Jeff Bezos and I wanted to dominate the cloud infrastructure space, would it not make sense to buy someone like Level 3, perhaps with the issuance of Amazon stock?

 

 

[Guest ValueCarl]

txlaw, we have this man that SEAM brought to the BOD a couple of years ago with the last name, Merchant, one who I like to describe as "The Merchant Man." He has some strong tech back ground out of Fannie Mae before heading for stage left near implosion and joining the SUNW, aka, Java board prior to their sale inclusive of his direct involvement. Unfortunately, he has hardly lived up to his name since joining the (3) board. I would prefer a more enterprising Merchant Man!  

 

In the case of AMZN and (3), we're talking about mixing models; horizontal and vertical. Crowe covered that in great detail during the conference call, and Storey picked up on it with respect to those types of clients being important customers in a different business, one which LVLT services in mass even "partners" with , but doesn't desire to be in by itself.

 

With that in mind, your wish to hear AMZN becoming a (3) customer at this juncture, should be Crowe's command to his troops!  

 

However, considering that "a man is never too rich, too thin or has enough bandwidth," what has prevented these large cap companies flush with cash making that first "BID" for (3) is only known by "The Shadow" from that BOD.

 

From my perspective, it has always been the more sure way of reconciling the difference between what "Mr. Market's" piss poor quote is showing, and reality.

 

So, "Bring it on!"  ;D    

 

By the way, this telecom "customer" language as opposed to the use of the word, "client," bothers me from my insurance days. By definition, customers come and go-flippers, so to speak-while "client" relationships last forever. If Crowe's yapping over the decade is only fractionally true today, he should begin calling his customers "CLIENTS!"  Then I might begin believing, or should I say "trusting" that "CHURN" is finally behind us except in cases where clients go out of business by no fault of (3)'s! Communication services are crucial NON DISCRETIONARY SERVICES which can't be avoided.          

[txlaw]

I understand that LVLT doesn't want to get into the IaaS business because it's not their expertise.  In fact, given past performance, any foray into that sphere could be disastrous if initiated by LVLT.

 

I also get that by partnering specifically with an Amazon or another IaaS vendor, LVLT might keep itself from winning business from other customers, whether or not they are in the same line of business as AMZN.

 

However, I do think from Amazon's perspective, there could be a great benefit from vertically integrating with one of the bigger CDNs, and especially a CDN that owns the network.  Just last month, Rackspace announced a strategic relationships with Akamai.  Akamai's content delivery services will be integrated with Rackspace's hosting service.  If Amazon wanted to differentiate its service further from a competitor like Rackspace, it could become the lowest cost provider of IaaS by vertically integrating their product with LVLT's fiber.  Furthermore, Amazon would become a best-in class CDN that could leverage its customer base to accelerate the filling of the pipes it just bought.

 

In other words, I'm just surprised there haven't been any bids yet for the assets from deep pocketed buyers who could get better terms for financing and who could make the assets even better under their control.  I suppose everyone knows that SEAM, HWIC, and others will demand full value for their stakes.