Level 3 Shocker

Level 3 is cutting 12% of it workforce, a move it expects to save the company $60-to-$70 million a year. Why the cuts? Despite the promise of VoIP, CEO Jim Crowe says that the end demand from the customers of its wholesale customers is taking a little longer to materialize. Why am I not surprised? Two reasons. First, the VoIP hype has gotten ahead of the market realities. Remember there were only a million VoIP customers at the end of 2004. The market grows exponentially, lets say to 10 million by end of 2005, and each customer pays say $20 a month, or $240 a year, it will be a $2.4 billion a year market. Level 3’s cut is going to be a percentage of that. Second reason is that when you are a wholesale provider, then you are always at the mercy of your resellers. So that’s something Level 3 cannot do anything about. Last point – I have often said VoIP is a deflationary force – it will gain popularity but it will be tough to grow the revenues. Everyone will face the same problem going forward – its not rocket science, its simple logic. The bandwidth prices, while not declining as rapidly as say a year ago are still declining, and there is too much capacity. Having said that, Level 3 is making the right moves – managing itself and waiting for the end demand to come.


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