# Level 3: hit by a double whammy?

Level 3, for the longest time had denied this – despite being a broadband company, a bulk of its revenues came from potatoes and meat business of selling dial-up access for wholesale. Its biggest customer was AOL, though the likes of Earthlink, NetZero etc are also customers. I had pointed this out in my Random Access column for the old Red Herring. (C/Net has quickly subsumed the name and the idea for itself!) Anyway, Level 3 even doubled down its narrowband bets when it bought the assets of Genuity, which had gone bankrupt. However with the fourth quarter 2003 earnings out in the open, Level 3 can no longer deny its narrowband dependence.

Revenue and loss per share came in at $988 million and 30 cents respectively, slightly better that what Wall Street was predicting. However that’s the end of good news. Level 3 has been hit by a double whammy: the bandwidth prices still remain in a slump and there is no end in sight, regardless of what some morons in downtown Manhattan say. Secondly, the narrow band business is fast diminishing as more of us become broadband enabled. Level 3 stated that its largest managed modem customer, AOL, notified the company that it will “reduce overall purchases of dial-up capacity and to proportionately reduce purchases from the company.” Not only does this bode ill for Level 3, but also for AOL. As I have consistently said, the telecom nuclear winter is not over yet. (Read related story in the Wall Street Journal) But the most telling comment comes from folks over at Light Reading. bq. Warren Buffett, it seems, is still the man to watch. He bailed out of his Level 3 Communications Inc. (Nasdaq: LVLT – message board) position in a major way last year. Today the operator saw its share price plummet$0.62 (11.05%) to \$4.99 in opening trading, as it warned of a significant dent in its expected 2004 revenues.