RealTime IT News

Something To Crowe About

Sometimes honesty truly is the best policy.

An open letter Tuesday by Level 3 Communications, Inc., Chief Executive Officer James Crowe to stockholders resulted in a two-point surge in morning trading on Nasdaq's listing.

Initial response, in the form of Level 3's stock value, met with favorable results the morning of the open letter's release. The stock climbed 6 percent, to 37.109 after Monday's closing of 35. The stock's value is still well below the company's 52-week high of 132.250.

The letter, prompted by a steady decline in the international backbone provider's stock price, clarified its revenue projections and Level 3s belief that its business model was sound.

In his letter, Crowe said changes in the telecommunications arena are occurring at a breakneck speed, with only those companies that can keep up the pace succeeding. The growing number of competitive local exchange carriers and startup backbone providers will take up any slack left by large companies like Level 3.

He pointed to the recent AT&T breakup into four components as proof that big companies need to change to meet the challenge in the coming years, or else suffer a fate similar to IBM in the 1980s.

IBM held the reins in the PC industry, controlling nearly every element in desktop PC software and hardware production. Complacency led to its fall from grace by up-and-coming youngsters Intel Corp. and Microsoft Corp.

In his letter, Crowe said:

"As the communications industry goes through a similar evolution, we will see companies struggle to redefine and reposition themselves. Until the winners and losers in this process become apparent, investors may see continued stock price volatility across the industry and even across the board reductions in valuations.

Therefore, we believe the right question to ask is, 'What companies will emerge with the right business plan, sufficient capital and the right team of people?' Those who are well positioned, with access to capital, will have tremendous opportunities. Those who don't will struggle.

"We continue to believe that we are exceptionally well positioned, and we continue to believe that we are at the threshold of one of the great opportunities in business."

Level 3's third quarter results Oct. 18 were met with criticism by stockholders and analysts alike, resulting in the company's continued drop in stock value. Level 3 reported a loss of $351 million in a quarter that also saw it sell off of its 50 percent ownership in Walnut Creek Mining Co.

Crowe told shareholders the company plans to increase spending in 2001, a brave move considering Level 3 didn't soften the blow by revising next year's projected revenue expectations.

"My answer is that we remain confident in our ability to earn a superior return on our invested capital," Crowe wrote. "The reason we have not updated 2001 revenue projections is not concern over 2001 performance, it is our longstanding commitment to provide the best, most thoughtful guidance that we can.

"In conclusion, many of the industry events that we had envisioned over the last few years have, in fact, occurred. We believe that the assets we have created -- and the team we have built -- position us exceptionally well going forward. We remain firmly committed to delivering exceptional value to you, our fellow stockholders, and appreciate your trust and continuing support."