Level 3 Communications, Inc., announced dark fiber agreements with two telecommunications companies Tuesday totaling $700 million, in hopes to regain investor confidence and jump start its stalled stock value.
The contracts with McLeodUSA, Inc., and XO Communications, Inc., gives Level 3 more than $2 billion in signed contracts this year, providing a steady income for the next 15 to 20 years.
It also marks the company’s contracts with more than 45 countries throughout Europe and America in 2000.
As is the case in many fiber installation contracts, companies pay for the fiber as it is installed, netting Level 3 real cash in its coffers when cable has been laid. The steady revenue flow comes from the colocation, operations and maintenance services included in the fiber installation contract. Officials said these services make up approximately 50 percent of the value of the contracts.
Kevin O’Hara, Level 3 president and chief operating officer, said the contracts are proof of his company’s real value in the industry, despite what the markets might show.
“We are pleased that dark fiber and associated services sales have been extremely strong this year,” O’Hara said. “We believe these relationships are sources of additional, long-term value creation for both our customers and Level 3.
“In addition, the dark fiber portions of these sales are sources of cash,” he continued, “since, while revenue is recognized over the life of the contracts, cash payments are mad as fiber segments are delivered to customers. These deliveries generally occur early in the term of the contract, as fiber cable installation is completed.”
Officials are also quick to point out that the company’s strong sales this year validate its business model, which has come under intense scrutiny after its stock took a nose dive this March, when the entire Internet industry saw its investors lose faith and venture capital disappear.
Level 3 has seen its stock plummet from the lofty height of more than $132 per share in March to November’s low of just under $29 per share.
After reporting a net loss of $903 million in the third quarter, a $607 billion jump from the second quarter, Level 3 Chief Executive Officer James Crowe wrote a letter to shareholders calling for patience.
“We continue to believe that we have the right operational, financial and technical plans to capitalize on one of the great opportunities in business today,” Crowe wrote. “We believe that we have built the most advanced communications network in the world, and, more importantly, one that continues to advance as technology advances.”
