SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report(Date of earliest event reported): January 24, 2000
Level 3 Communications, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 47-0210602
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1025 Eldorado Blvd., Broomfield, Colorado 80021
(Address of principal executive offices) (Zip code)
720-888-1000
(Registrant's telephone number including area code)
Not applicable
(Former name and former address, if changed since last report)
<PAGE>
Item 5. Other Events
On January 24, 2000, the registrant held a conference entitled "Silicon
Economics II: Supply o Demand & Disaggregation." Attached to this filing as
Exhibit 99.1 are the slides presented at that conference. Exhibit 99.1 is hereby
incorporated herein by reference as if set forth in full herein.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired
None
(b) Pro forma financial information
None
(c) Exhibits
99.1 Slides presented at "Silicon Economics II: Supply o Demand &
Disaggregation" by the registrant on January 24, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Level 3 Communications, Inc.
February 7, 2000 By: /s/ Neil J. Eckstein
Date Neil J. Eckstein, Vice President
<PAGE>
Exhibit 99.1
Table of Contents
The Level 3 Strategy
1. Overview Jim Crowe
2. Supply Jim Crowe
3. Demand Ron Vidal
4. Disaggregation Ron Vidal
5. Silicon Economics and Value Creation Jim Crowe
The Level 3 Approach
6. Customers, Sales and Services Kevin O'Hara
7. - Colocation Services Jimmy Byrd
8. - Softswitch Services Ike Elliott
9. Level 3 Network Dan Caruso
10. International Strategy Colin Williams
11. Our People Kevin O'Hara
12. Financial Overview Doug Bradbury
13. Summary
Q & A
<PAGE>
Forward Looking Statements
The presentations made at the Silicon Economics II: Supply o Demand &
Disaggregation, both oral and written, contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, among others, statements concerning:
anticipated trends in the market for communications services; the elasticity of
demand for communications services; the anticipated reduction in the cost to
provide communications over an IP technology based network; the anticipated
price-performance of IP technology based products and services; the sources of
demand for communications services; expectations of the rate of price
performance improvements; estimates of completion dates; future revenues,
monthly recurring revenues, gross margin percentages, selling general and
administrative expenses as a percentage of revenues, capital requirements and
levels of capital expenditures; expectations as to funding the company's capital
requirements; and other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts.
The forward-looking statements are based on management's beliefs as well as on a
number of assumptions concerning future events. Participants at the conference
and readers of these materials are cautioned not to put undue reliance on these
forward looking statements, which are not a guarantee of performance and are
subject to a number of uncertainties and other factors, many of which are
outside the company's control, that could cause actual events or results to
differ materially from those expressed or implied by the statements. The most
important factors that could prevent the company from achieving its stated goals
include, but are not limited to, failure by the company to: achieve and sustain
profitability based on the creation and implementation of the Level 3 Network;
overcome significant early operating losses; overcome difficulties in
constructing the Level 3 Network which could increase its cost and delay its
schedule completion, produce sufficient capital to fund the company's business
plan; develop financial and management controls, as well as additional controls
of operating expenses as well as other costs; attract and retain qualified
management and other personnel; install on a timely basis the switches/routers,
fiber optic cable and associated electronics required for successful
implementation of the company's business plan; and develop and implement
effective internal processes and systems for processing customer orders and
provisioning. For a discussion of certain of these factors, please see the
Company's Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on November 9, 1999.
* * *
The materials presented at the Silicon Economics II: Supply o Demand &
Disaggregation, including materials contained in this binder, are copyrighted by
Level 3 Communications, Inc.
Copyright (C) Level 3 Communications, Inc. 2000 - All Rights Reserved
<PAGE>
Overview
Jim Crowe
President
and
Chief Executive Officer
<PAGE>
Four Keys To Level 3's Strategy
o Bandwidth price-performance improvement rates will exceed Moore's law
o Bandwidth demand is strongly price elastic
o The combination of rapidly dropping prices and increasing demand ("Silicon
Economics") is a key dynamic in the communications industry
o Silicon economics is disrupting the traditional, vertically integrated
communications industry
<PAGE>
A Properly Designed Network Should
Leverage Rapidly Improving Technologies
IP Optical
Technology Technology
Trend Line Annual 52% 100%
Improvement Rate (%)
Time to Double
Performance Per 20 12 Weighted Annual =80%
Dollar (mo) Improvement Rate
Percentage of
Cumulative Variable 34% 66%
CapEx(1)
[FN]
(1) Level 3 10-year plan
</FN>
<PAGE>
The Silicon Economics Model
[Graphic: insecting price and demand curved lines]
o Rapid decrease in unit cost and unit price caused by market based
technology improvement
o Unit demand grows much faster than unit price declines
<PAGE>
Computing Prices And Demand
Illustrate Silicon Economics
[Graphic: intersecting line graph with $ per MIPS on Y axis and years 1998 to
1996 on X axis]
o Market based technical improvements have rapidly lowered unit cost and
price
o For each 1% decrease in price, demand has increased over 2%
Source: Industry Data
<PAGE>
Silicon Economic Model
[Graphic: Quadrant graphic with LD in lower left, electricity in upper left,
computer hard drives lower right and micro-processors, backbone routers and
bandwidth in upper right with increasing price elasticity on the X axis and
price-performance improvement increasing on the Y axis.]
<PAGE>
Silicon Economics Is Disrupting The
Traditional, Vertical Integration Model
o Slow moving vertical companies challenged by fast moving focused
competitors
o Market based standards enable horizontal companies to offer bundled
services
o Horizontal companies rapidly decrease costs and prices, and stimulate
demand
<PAGE>
Summary
o To benefit from silicon economics, a service provider must rapidly decrease
unit cost and unit price, and increase unit demand
o A continuously upgradeable network is required to leverage technology
improvements
o Voice is a significant opportunity in the near term
o IP based multimedia will dominate revenues over the longer term
o Level 3 is focused on selling Internet infrastructure services to Web
centric companies
<PAGE>
The Level 3 Business Plan
[Graphic: representative Gnatt chart showing Phase 1 to Phase 6 with years 1998
to 2000]
o Focus on Web centric customers with rapidly growing demand
o Comprehensive range of services
o Upgradeable network
o Attract and retain the best people
o Maintain financial strength
<PAGE>
Supply
<PAGE>
The Parts Of A Network
[Graphic: representative schematic of access network and backbone network]
o Access networks support specific service areas and directly connect to
customers
o Backbone networks connect points of traffic aggregation
<PAGE>
The Transmission Choices
[Graphic: two column chart with Access as label for first column and Backbone as
label for second column. Wireless is label for first row and Wireline is label
for second row. Upper left square contains fixed wireless, PCS, Cellular, 3G and
Satellite. Upper right hand square contains N/A. Lower left hand square contains
copper, coax and fiber. Lower right hand square contains fiber.]
<PAGE>
Fixed Wireless And Satellite
Are Not Competitive With Fiber
For Broadband Applications
<TABLE>
<S> <C> <C> <C>
Single Fiber Bandwidth
(1) / Total Spectrum Total U.S. Spectrum
Owned Company Owned (Mhz)
3834 TELIGENT 13,040
Capacity of 1 Fiber = 2167 MCI/SPRINT 23,072
1422 ART 35,150
1015 WINSTAR 49,250
982 NEXTLINK 50,900
Source: ING Baring, JP Morgan, Lehman Brothers, FCC
<FN>
(1) 50 Thz
</FN>
</TABLE>
<PAGE>
Fixed Wireless Is Cost Efficient In A Ring
Which Expands As Fiber Price Performance Improves
[Graphic showing generic city map with two concentric circles. Inner circle
labeled Fiber and outer circle labeled wireless with arrows on outer circle
pointing outward].
<PAGE>
How Much Fiber Based Backbone
Capacity Is (Or Will Be) In Place?
o Dark fiber is not equivalent to capacity
o Fiber is a rapidly changing network element
o Each new generation of fiber enables substantial unit cost decreases
<PAGE>
"Saying there is a glut of bandwidth because
there is a lot of fiber is like saying there is a glut
of microprocessors because there
is a lot of sand."
Dr. Robert Metcalfe
Inventor of the Ethernet
Networking Protocol
<PAGE>
Fiber Is Only A Small Part Of The
Variable Cost Of Capacity...
[Graphic: Pie chart showing Opto-electronics as greater than 95% and fiber as
less than 5%]
o Data from Level 3 ten year plan
o Capital costs only
o Cost of fiber for Level 3 requirements only
o Does not include cost of fiber for dark fiber sales
<PAGE>
...However, Fiber Characteristics
Determine The Cost To Provide Capacity
Unit Costs Are Determined By:
The distance between equipment required to amplify and regenerate signals
The number of colors of light (wavelenthgs)
The line speed at which the lasers operate (OC-12, OC-48, etc.)
<PAGE>
Both fiber and opto-electronics are rapidly improving.
The lowest unit costs results
from the optimum combination of
these two technologies."
Anil Khatod
President
Optical Internet
Nortel Networks
<PAGE>
"Fiber and opto-electronics are proving to show the highest price
performance improvements in telecommunications. The lowest unit costs will be
achieved by optimally combining these two technologies."
Wendell Weeks
Executive Vice President
Opto-Electronics
Corning Inc.
<PAGE>
"It is now clear that optical fiber, WDM and
transmission equipment are all a part of a single
integrated system. Each of these technologies is rapidly
improving. I believe the right combination of
each new generation of these elements can drive down
the cost of moving information at rates that
make Moore's Law look slow by comparison."
Gerry Butters
Senior Vice President
Marketing and Technology
Chief Technology Strategist
Lucent Technologies
<PAGE>
Submarine Cables Illustrate The Importance
Of Optimizing Fiber Design To Match Equipment Advances
o Each fiber is custom designed and fabricated to optimize price performance
o As a result, submarine cables span thousands of miles without very
expensive electrical regeneration
o Several companies are bringing this same design approach to land based
systems
<PAGE>
Each New Generation Of Fiber Provides
A Bigger "Budget" To Allocate To
Equipment Spacing, Number Of
Wavelengths And Line Speed
Generation Fiber Type Relative Budget
1 Single Mode 100
2 NZDSF 123
3 LEAF 138
4 Gen 4 172
5 Gen 5 345
6 Gen 6 431
7 Gen 7 862
8 Gen 8 1,078
9 Gen 9 2,156
Source: Corning, Inc., Nortel Networks, Inc., Level 3 Engineering
<PAGE>
Unit Cost Of Transport
[Graphic: Line graph with scale increasing from 0.01 to 10,000 labeled Unit Cost
$ per Gb/s per mile on the Y axis and years 1990 to 2010 on the Y axis. Graph
depicts decreasing Unit Costs over time for each new generation of fiber
introduced]
Assumptions:
o Cost of opto-electronics for 1,000 mile point to point system
o New fiber generations improve at SMF historic rates (29% per year)
o New fiber generation every 21 months
Source: Corning, Inc., Nortel Networks, Inc., Level 3 Engineering
<PAGE>
Compounding Unit Cost Reduction Rates
Provide A Substantial Competitive Advantage
% Unit Cost Reduction From Gen 1
Year Fiber Generation (SMF)
2000 LEAF 28%
2002 Gen 5 71%
2005 Gen 7 88%
2010 Gen 9 95%
Source: Corning, Inc., Nortel Networks, Inc., Level 3 Engineering
<PAGE>
Transport Is The Largest Cost Element For
IP Networks And Web Centric Companies
[Graphic: Bar graph showing total $ of cost per CD Rom (NY to LA) total for IP
network is $1.98 and total for Circuit Switched Network is $27.08]
o Transport is approximately 50% of IP network unit cost
o Transport is approximately 4% of circuit switched unit cost
<PAGE>
<TABLE>
<CAPTION>
National Networks Are Composed Of Various Fiber Generations
<S> <C> <C> <C> <C>
Company (U.S. Network) Miles Fiber Generation(1) Total (Fiber * Lit (Fiber * Miles)
Miles)
AT&T 41,000 1 1,435,000 369,000
Sprint 31,000 1 620,000 155,000
MCI WorldCom 45,000 1 1,080,000 270,000
Qwest 18,450 2 885,600 73,800
Global Crossing 13,000 2 312,000 52,000
GTE 13,000 2 312,000 26,000
Williams 33,000 1 to 3 1,531,000(2) 19,700
IXC (Broadwing) 16,400 2 1,574,400 65,600
Enron 5,500 3 588,000 11,000
Level 3 16,000 3 1,152,000 780
Source: JP Morgan - Level 3 Estimates - WCG Public Disclosures
<FN>
Notes: (1) Predominant fiber generation. Certain networks combined mixed fiber
generations
(2) Assumes average fiber count of 46
</FN>
</TABLE>
<PAGE>
Only A Small Percentage Of Total
And Lit Fiber Employ Current Technology
[Graphic: Two pie charts. First pie chart labeled Total Fiber Miles - Gen 1
(SMF) 33%, Gen 2 (NZDSF) 38% and Gen 3 (LEAF) 29%. Second pie chart labeled Lit
Fiber Miles -- Gen 1 (SMF) 77%, Gen 2 (NZDSF) 22% and Gen 3 (LEAF) 1%]
<PAGE>
Multiple Conduits Are Required
To Leverage Technical Improvements In Optical Fiber
o Pull new fiber when unit cost is lower
o Move traffic when O&M cost in oldest fiber exceeds Capex + O&M in newest
fiber
<PAGE>
<TABLE>
<CAPTION>
National Networks Have Varying Numbers Of Conduits
<S> <C> <C> <C> <C> <C>
Company Network Miles Conduits Total Conduit Miles Empty Empty
Conduits Conduit Miles
AT&T 41,000 1 41,000 0 0
Sprint 31,000 1 31,000 0 0
MCI WorldCom 45,000 1 45,000 0 0
Qwest 18,450 2 36,900 1 18,450
Global Crossing 13,000 0(1) 0 0 0
GTE 13,000 0(1) 0 0 0
Williams 33,000 0 to 3 47,750 0 to 2 25,900
IXC (Broadwing) 16,400 1 16,400 0 0
Enron 5,500 1 5,500 0 0
Level 3 16,000 12 176,000 11(2) 176,000
Total 235,350 19 to 22 399,550 12 to 14 220,350
Source: JP Morgan, Company Reports - WCG Public Disclosures
<FN>
Notes: (1) Included in Qwest Network
(2) One conduit sold to INTERNEXT
</FN>
</TABLE>
<PAGE>
Level 3 Is Positioned To Benefit From
Fiber Technology Improvements
[Graphic: Two pie charts. First, labeled Number of Empty Conduits. Level 3 11,
Williams 0 to 2 and Qwest 1. Second, labeled Empty Conduit Miles (%) Level 3
80%, Williams 12%(1) and Qwest 8%].
[FN]
(1) Assumes 25,900 empty conduit miles
</FN>
<PAGE>
Summary and Conclusions
o Fiber represents less than 5% of the cost of capacity
o Fiber is a rapidly changing technology
o Each new fiber generation substantially lowers associated equipment costs
which represent greater than 95% of total cost
o Multi conduit systems are required to leverage fiber technical improvements
o Level 3 has the only US and European multi-conduit networks(1)
[FN]
(1) Estimated substantial completion 4Q00
</FN>
<PAGE>
Demand
Ron Vidal
Group Vice President
New Ventures & Investor Relations
<PAGE>
Excess Supply Predictions Have Been
Common In Technology Based Markets
o Mainframe Computers
o Copy Machines
o Fax Machines
o Cellular Communications
o Microprocessors
o The Internet
<PAGE>
Historical Analysis Fails To Predict
Demand From Two Sources
o Demand created by disintermediation of legacy products and services
o Demand for new products and services
<PAGE>
Historical Analysis Has Underestimated Bandwidth Demand
[Graphic: Graph depicting actual bandwidth demand versus projected bandwidth
demand from 1980 to 2010. Source Lucent Technologies.]
<PAGE>
Disintermediation
Definition: The replacement of a product or service by a lower cost alternative.
<PAGE>
Disintermediation Is A Major Source Of Current Bandwidth Demand
Existing Market Substitute
Consumer and business sales Electronic commerce
Physical software distribution Network based software distribution
Enterprise and consumer
a software applications Application service providers
Physical music and video
distribution Network based content distribution
Broadcast and Cable TV Streaming audio and video
o Existing information distribution channels are very large
o Communications services are directly substitutable for these channels
o As prices decline, demand grows more rapidly
<PAGE>
Funding For New Services And Applications Is Accelerating
[Graphic showing increasing dollars of funding to Technology Companies and
Internet-related companies based upon data from PriceWaterhouseCoopers]
<PAGE>
Bandwidth Intensive Companies Are Starting Up At Record Rates
o 25 to 30 Web centric startups receive a round of financing each day
o Web centric enterprises spend 25% to 50% of operating expense on bandwidth
o Geographic distribution of investments
- 37% Silicon Valley
- 7% Boston
- 56% rest of U.S.
<PAGE>
New Companies are Creating Bandwidth
Demand at an Unprecedented Rate
Service Providers Focal, RCN, Allegiance, Splitrock
ISPs Juno, Earthlink/Mindspring, NetZero, AOL
Portals AOL, Yahoo, Excite/@home
Web Hosting DataReturn, eManage.com, Xuma
E-commerce Commerce One, Amazon.com
Streaming Content Yahoo., Enron
Wireless IP Alcatel, Nokia, NovAtel.Inc.
IP Voice 3Com
ASP WebUseNet, onebox.com, Live365.com, Desktopnews,
Convergys
<PAGE>
Communications Approaching The Quality Of
Physical Presence (Telepresence)Is Illustrative
Of New Application Bandwidth Demand
Assumptions:
1 half/sphere/per eye
24 bit color
30 frames per sec.
2,400 dots per inch
10.4 billion pixels
One telepresence session requires 15 terabits/second (uncompressed)
<PAGE>
<TABLE>
<CAPTION>
Bandwidth Requirements Of Selected Future Applications
<S> <C> <C>
Applications Backbone Bandwidth (1) (Petabits Multiple of Current Backbone
per sec) Bandwidth
Current backbone network .001 1
Online virtual reality/augmented 1 to 10 1,000 to 10,000
reality
3-D holography/telepresence 30 to 70 30,000 to 70,000
Meta computing 50 to 200 50,000 to 200,000
Web Agents 50 to 200 50,000 to 200,000
Source: Corning Inc.
<FN>
Notes: (1) 1 Petabit = 1,000,000,000,000,000 bits
</FN>
</TABLE>
<PAGE>
Summary
o Bottoms up analyses have consistently underestimated demand
o Historical analyses of bandwidth demand have underestimated demand from -
Disintermediation of existing information distributed markets - New
applications
o As bandwidth unit prices decrease, bandwidth unit demand will increase much
faster
<PAGE>
Disaggregation
<PAGE>
"When a horizontal business model
meets a vertical business model,
horizontal wins every time."
John Chambers
President and CEO
Cisco Systems, Inc.
<PAGE>
Vertically Integrated Industries Disaggregate When...
o The pace of technical change is difficult for one company to master
o Price performance improvements for new technologies significantly drop unit
costs
o Rapid changes in demand for disaggregated products or services are
difficult for one company to meet
o Market based standards, and partners, make bundling of services possible
<PAGE>
IP And Optical Technology Development Is Market Based
Market Based IP and Centrally Planned
Optical Technology Technologies
Led by hardware, software Led by national/international
and service providers standards bodies
Product success determines Standards determine product
standards development
Unpredictable and rapid Predictable and slow
<PAGE>
Market Based Standards And Silicon Economics
Have Disrupted The Computer Industry
[Graphic: Mainframe Market (Vertical Integration) showing physical hardware on
bottom, memory, processor and storage on next level up, operating system on next
level up and applications on top level. Client/Server Market (Horizontal
Integration) physical hardware broken into three separate units on bottom,
memory, microprocessor and storage broken into three units on next level up,
operating system broken into three units on next level up and applications
broken into three units on next level up.]
<PAGE>
Market Based Standards And Silicon Economics
Are Disrupting The Communications Industry
[Graphic: Traditional Communications (Vertical Integration) Access and long
distance network on bottom level, intelligent network on next level up and
applications on top level. Web Centric Communications (Horizontal Integration)
Access and broadband backbone in separate units on bottom level, intelligent
distribution on next level up, hosting and network apps and data in separate
units on next level up and portals, asps and e-commerce on top level in three
separate units.]
<PAGE>
Disaggregation Has Created Substantial
Value In The Computing Industry
<PAGE>
Disaggregation Is Already Apparent
In The Communications Industry
<PAGE>
Summary
o Silicon economics is disaggregating the traditional, vertically integrated
communications industry
o Value creation will occur most rapidly in focused, more horizontally
integrated companies
<PAGE>
Silicon Economics
&
Value Creation
Jim Crowe
President
and
Chief Executive Officer
<PAGE>
What Combination Of Interrelated Prices,
Demand And Capacity Maximizes NPV?
Price by service by location
Demand by service by location
2,500 city pairs = Tens of Thousands of Variables
Number and type of fiber over time
Types of opto-electronics
Network architectures
<PAGE>
Maximizing NPV Requires Many Complex Trade-Offs
Between Tens Of Thousands Of Variables
Dropping Prices - Lowers revenue per unit - But increases number of units sold
Increasing transmissions speed (OC-12, OC-48) - Increases capacity - But
decreases equipment spacing and number of colors of light
Increasing numbers of colors (wave lengths) - increases capacity - But decreases
equipment and transmission speed
Shortening network element life - Leverages price performance improvements - But
increases absolute capital requirements
<PAGE>
Level 3 Has Developed The Industry's First Integrated Optimization Model
o Utilizes advanced optimization technology
o Level 3 has strong team of leading operations research and process
optimization personnel
o Lucent (Bell Labs) has provided leading researchers to assist in
mathematical formulations
<PAGE>
Results Have Shaped Level 3 Strategy
o NPV is maximized when price decreases approach technology improvement rates
o Pull less fiber, more often, to leverage technical improvements - Requires
multiple conduits
o Deploy new generations of opto-electronics technology very quickly
o Average asset lives are short
o Small improvements compound over time
<PAGE>
Some Future Directions
o Modeling of competitor response
o Forward pricing models
o Integrate optimization models and provisioning systems
<PAGE>
Customers, Sales & Services
Kevin O'Hara
Executive Vice President
And
Chief Operating Officer
<PAGE>
Level 3 Sales Are Driven By High Growth Web Centric Companies
[Graphic: Pie chart web centric at 76%, carriers at 11% and Enterprises at 13%]
o Web centric companies' bandwidth demands are doubling every 4-6 months
o Level 3 services often represent 25% to 50% of customer operating expense
o Many customers are colocated at Level 3 gateways - Colocation substantially
reduces bandwidth costs
<PAGE>
Level 3 Provides A Comprehensive Range
Of Services To Web Centric Companies
[Graphic: Collection of customer logos]
o Transport services
- Private line
- Dark fiber
- Conduit
o Colocation and Internet access
o Softswitch platform services
- Managed modem
- Voice
o Submarine Services
<PAGE>
Transport Services
[Graphic: collection of conduits with a single cable in a single conduit]
o Includes private line, dark fiber and conduit
o Private line is $44 billion global market
o Current market is supply constrained
o Upgradeable multi-conduit local and intercity network assures low cost
position
<PAGE>
Transport Services
Representative Customers
Allied Riser Communications (ARC)
Cable & Wireless
CMGI Inc.
COLT Telecom
Computer Telephone Corp.
Convergys
DBN Corporation
Desktopnews
EManage.com
Enron
Focal
Disney/Go
InterNAP Network Services
Intellispace
NEXTLINK
Juno
Network Access Solutions
Northpoint Communications
Pacific Gateway Exchange
RCN
Splitrock Services Inc./McLeod
Time Warner Telecom
Worldstar Telecom
<PAGE>
Colocation Services
Jimmy Byrd
Senior Vice President
Colocation & IP Services
<PAGE>
Colocation And IP Services
o $50 billion global market (Source: International Data Corp. 1999)
o Level 3 global facilities include over 3.4 million sq. ft.
o Connectivity to Level 3's low cost broadband and IP networks
o Today's market is supply limited
<PAGE>
Hosting And Colocation Are
Different Businesses
Hosting
o Content development
o Application Support
o Operating system management
o Database management
o Server management
Colocation
o Physical space
o Power and environmental management
o Broadband network connectivity
o Hosting is an IT systems integration busines
- People intensive
o Colocation is a broadband network service
- Provides portal to network
- Colocation on Level 3 backbone can reduce bandwidth costs by
50% to 80%
<PAGE>
Web Centric Companies Benefit
By Locating In Level 3's Gateways
[Graphic: Cost of transport for a 750 mile circuit. Relative cost on Y axis bar
graph for Level 3 gateway and Third party gateway leased network]
<PAGE>
Level 3 Has More Gateway Space Than Any Competitor
[Graphic: bar graph showing Level 3 with most, next Exodus, next Global Crossing
and lowest Qwest]
<PAGE>
IP Services
[Graphic: Map of United States with IP Backbone.]
o Global IP network
o Directly connected to tier one ISPs
o Accessible via local transport or colocation
<PAGE>
Colocation And IP Services
Representative Customers
Akamai
Alchemy Communications, Inc.
AltaVista Company
Yahoo
Castle.net
CMGI Inc.
Communications & Leasing Services, Inc.
Computer Telephone Corp.
Consumer Net Marketplace, Inc.
Critical Path
DataReturn
EarthLink/Mindspring
Disney/Go
Intervue
Keynote Systems
Live365.com
NetGravity
Net2000 Communications
Northpoint Communications
onebox.com
Oracle
Sony Online Entertainment
StorageTek
WebUseNet
Xuma
<PAGE>
Summary
o Gateways are portals to Level 3 Network
o Level 3 IP bandwidth and capabilities are redefining the market
o Supply constrained market
<PAGE>
Softswitch Services
Ike Elliott
Senior Vice President
Softswitched Enabled Services
<PAGE>
Softswitch Platform Services
o $664 billion global market (Source: International Data Corp. 1999)
o Softswitch architecture means rapid, long term cost and price reductions
o Services include
- Managed Modem (available)
- LD Voice (available)
- Local Voice (estimated 2001)
<PAGE>
Today's Revenues Are Dominated
By Telephone Services
($ millions)
Today's IP Market
Data Services $47,104
Internet Access 27,000
IP Telephony 4,100
IP VPN 913
Total $79,117
Today's Telephone Market
Switched Telephony $529,000
Fax 121,000
Total $650,000
Today's Voice Services Market == 89%
Todays's Total Market
Source: International Data Corp. 1999
<PAGE>
Softswitch Services
o Softswitch services with IP economics are a major opportunity today
o Softswitch technology enables high quality services today
o Softswitches are commercially available today
<PAGE>
Softswitch Architecture
o Software based substitute for conventional circuit switch
o Utilizes general purpose computers
o Open interfaces enable third party software development
o Leverages silicon economics
o Utilizes efficient, distributed architecture
<PAGE>
Key Concepts
The Four Major Communications Networks
IP Networks
Telephone Networks
SS7 Networks
All on top of Transmission Network
<PAGE>
Key Concepts
Digital Circuit Switch
o Integrated functionality
o Proprietary software
o Proprietary application development
<PAGE>
Key Concepts
SS7 Enabled Softswitch
o Distributed functionality
o Open platforms
o Open interfaces enable new applications
o Overflow to PSTN when quality is unacceptable
<PAGE>
Softswitches And Media Gateways
Are Commercially Available Today
o Over 100 leading companies are members of International Softswitch
Consortium
o At least 22 vendors have introduced or plan to introduce Softswitch gateway
controller technology
o At least 20 vendors sell or plan to sell Softswitch gateway components
<PAGE>
Softswitched Services Leverage Silicon Economics
Time To Double
Performance Per Dollar
(mo)
Circuit Switch 80
Softswitch 20
o Currently a Softswitch costs 40% to 45% less than an equivalent circuit
switch
o Given relative price-performance improvement rates, Softswitches will be
much less expensive over time
o Distributed components with open interfaces will spur development of new
applications
<PAGE>
Managed Modem Is The First Widely Available Softswitch Based Service
o Used for dial-up Internet access
o Available since October 1998
o Quality equal to or better than circuit switch based service
o Level 3 is the only national supplier
<PAGE>
Managed Modem
Representative Customers
o AOL
o Access Technologies
o CMGI Inc. o Earthlink/Mindspring
o Juno
o NetZero
o UltraNet Communications
o 1st Up
<PAGE>
(3)Voice Is The Industry's First Commercially Available Softswitch
Based Voice Service
o Sold to LD carriers
o Available since Dec 1999
o Quality equal to circuit switch based service
o Coverage in 24 cities by Mar 2000
o Level 3 is the only national supplier
<PAGE>
Submarine Services
o Key part of Web centric focus
o Many Web centric companies have international operations
o Ownership assures Level 3 has low cost position
o Level 3 is major operator
o TAT-14
o AC-1
o Project Yellow
o US-Japan
o Japan-Hong Kong
<PAGE>
Web Centric Sales Representative
Average Productivity Is Rapidly Increasing
[Graphic: bar graph showing increasing sales from Q1 to Q2 to Q3 in 1999]
<PAGE>
Customer Service
o Focused on Web centric enterprises
o Convergys partnership enables full suite of services and Business
Support Systems
o 24x7 customer service and support
o Growing Web based support capability
<PAGE>
Summary
o Level 3 is focused on enabling high growth, Web centric enterprises
o Level 3 has the industry's most complete set of Web centric services -
Transport - IP and Colocation - Softswitch Services - Submarine
Transport Services
o Level 3 Sales productivity are rapidly growing
<PAGE>
Level 3 Network
Dan Caruso
Group Vice President
Global Customer Operations
<PAGE>
[Graphic: five pictures: colocation sites; IP network; intercity network; local
networks softswitch network]
<PAGE>
Colocation Gateway Facilities
Typical Colocation Site
[Graphic: Not to scale depiction of layout of typical colocation facilities]
o Typically 50,000 to 500,000 sq. ft.
o Dual, fault tolerant Level 3 network connections
o Interconnected with at least 3 other local networks and intercity
networks
o High level of physical and network security
<PAGE>
Gateway Facilities
[Graphic: Map of U.S. showing locations of colocation facilities separately
identified as in service in 1999 and 2000]
<PAGE>
Typical City Network
[Graphic: artist rendition of city network in lower Manhattan and northern New
Jersey.]
o Connects
o Colocation sites
o ILEC Cos
o Third party hosting sites
o Carrier hotels
o Upgradeable multiple conduit system
o Connects points of traffic aggregation
o Not an access network
<PAGE>
Metropolitan Networks
[Graphic: Map of U.S. showing locations of metropolitan networks separately
identified as in service in 1999 and 2000]
<PAGE>
U.S. Intercity Network
[Graphic: Map of the U.S. showing proposed intercity network with in service
dates of 1999 and 2000]
o 16,000 U.S. route miles
o Upgradeable 12 conduit system
o Connects more than 150 cities
o Leased facilities enable sales upon gateway completion
<PAGE>
Level 3 Expects To Complete The
U.S. Intercity Network Ahead Of Schedule
[Graphic: time line graphic showing original schedule and newly announced
schedule]
o 9,300 miles of network complete as of Dec. 31, 1999
o Average of 250 miles of network completed per week
o 3,000 miles of 96 fiber cable installed as of Dec. 31, 1999
o First segments lit 4Q99
o Substantial completion in 4Q00
<PAGE>
Level 3's Intercity Network Cost Is
A Strategic Advantage
[Graphic: bar graph showing indicative cost per conduit mile of Level 3's
network ($12,000) Qwest's network ($61,000) Williams ($82,758) and Broadwing
(IXC) ($120,000). Notes: Assumes cost of $120,000 per mile for single conduit
network plus $2,000 per mile for each additional conduit for Level 3. Williams
is noted that non continuous conduit - figure indicates average conduits per
mile.]
<PAGE>
Level 3 IP Network
[Graphic: Map of the U.S. with IP Network shown with dates in service for 1999
and 2000]
o Operational IP backbone connects 27 cities
o Direct peering with major ISPs
o Currently replacing ATM layer with MPLS routing
<PAGE>
Level 3's Network Uses 4 Layers
[Graphic: depiction of elements of network with primary attributes. Fiber -
physical medium; WDM - high capacity, SONET - multiplexing, low error rate,
fault tolerance, ATM - quality of service, IP - addressing]
<PAGE>
4 Layer Networks Have Inefficient Overlapping Functionality
Global Addressing - IP
Quality of Service - ATM
Multiplexing - IP, ATM, SONET, WDM
Low Error Rate - IP, ATM, SONET
Fault Tolerance - IP, ATM, SONET
High Capacity - SONET, WDM
<PAGE>
Networking Technologies Have
Varying Improvement Rates
Improvement Rate Per Time to Double Performance per Dollar
Year % (mo)
IP 52 20
ATM 23 40
SONET 32 30
WDM 130 10
Souce: Level 3 Estimates "Why Circuit Switching is Doomed," Peter J. Sevcik,
Business Communications Review, Sept., 1997
<PAGE>
Multi Protocol Label Switching (MPLS) Enabled Routers Are Expected
To Eliminate ATM
o MPLS is an extension of IP
o MPLS provides Quality of Service capability similar to ATM
o MPLS enabled routers are commercially available - Level 3 is currently
deploying MPLS routers
o Elimination of ATM provides substantial cost savings
<PAGE>
Optical Protection And Multiplexing
Will Replace SONET Protection
And Multiplexing
<PAGE>
Caveat!
Unexpected innovations in technology will disrupt predicated technology trends
(It's good to hve an upgradeable network)
<PAGE>
The Level 3 Softswitch Network
[Graphic: Map of the U.S. with indications of locations of Media Gateways and
Softswitches]
o Distributed, open architecture
o Fully interconnected with public telephone network
o Provides Managed Modem and (3)Voice Service
o Level 3 has deployed the only national Softswitch network
<PAGE>
Summary
o On or ahead of schedule on all major activities
o Major network elements will be completed during 2000
o Continued focus on execution o Level 3 is the leader in deployment of IP
optimized, upgradeable networks
<PAGE>
International Strategy
Colin Williams
Executive Vice President
Global Services & Systems
<PAGE>
International Strategy
o Focus on Web centric companies
- Market leadership in colocation facilities
o Leverage industry's first upgradeable, multi-conduit network
- Connect Internet intensive locations
o Maintain access to low cost submarine capacity
o Sell scaleable, globally compatible services
- Leverage global development and deployment
<PAGE>
<TABLE>
<CAPTION>
Western Europe
Level 3 is Focused on High Growth, Web Centric Markets
<S> <C> <C> <C> <C>
Country Population (000s) Internet Growth Rate (%) Number of Users
Penetration (%) (000s)
Germany 81,600 12.4 31.4 10,118
United Kingdom 58,100 15.1 39.3 8,773
France 58,978 6.9 39.3 4,069
Italy 57,200 5.4 38.8 3,088
Netherlands 15,808 15.7 36.0 2,482
Belgium 10,182 7.7 35.0 784
Sweden 8,100 28.2 31.5 2,284
Spain 39,600 5.1 48.3 2,019
Finland 5,158 31.0 25.0 1,599
Denmark 5,357 21.5 29.0 1,156
Switzerland 7,275 14.4 32.0 1,048
Graphic indicates that Level 3 Markets are top 6 markets on chart.
Source: IDC Report (11/22/99), Ovum Internet Market Forecasts, Level 3 Estimates
</TABLE>
<PAGE>
Relative Bandwidth Costs Are High
Country EU Private Line Price Ratio(1)
U.S. 1.0
Netherlands 3.5
Belgium 5.0
United Kingdom 5.8
France 6.6
Germany 7.7
Italy 13.6
Source: Tarifica "Leased Line market in Europe" 1998 (Incumbent Pricing)
[FN]
Notes (1) For E1 half circuit
</FN>
<PAGE>
Western Europe Services Availability
Service Availability
Transport
- Private Line Available
- Dark Fiber Available
- Conduit Available
Submarine Transport Available
IP and Colocation
- Colocation Available
- IP Available
Softswitch Services
- Managed Modem 2000
- Voice Service 2001
<PAGE>
Representative Customers
Xstream
Gigabell
Quoka.com
Gigaport
BBC
COLT
Sony Music Europe
IDT
Cistron
Wish.com
Planet Internet
UPC
Versatel Telecom
Compuware
Euronet
Scoot.com
Virtual Internet
LIT
<PAGE>
Western Europe Gateway Status
[Graphic: Gateway locations in Western Europe and in service date of 1900 and
2000]
<PAGE>
Western Europe Metropolitan Networks
[Graphic: Western Europe locations and in service dates of 1999, 2000 and
future]
o Multi-conduit capability
o Connects PTTs, carriers and Internet traffic hubs
<PAGE>
Western Europe Intercity Network
[Graphic: Route map of 3 ring intercity network in Western Europe]
o Upgradeable, multi-conduit network
o Over 2100 miles complete as of 4Q99
o 4Q00 scheduled completion
o Joint build with COLT
<PAGE>
European IP Network
[Graphic: depiction of network connections between East Coast of U.S. and
European intercity network]
o Operational IP Backbone connects 4 cities
o Peering with major ISPs
o Currently replacing ATM layer with MPLS routing
<PAGE>
Level 3 Trans Atlantic Capacity
[Graphic: depiction of undersea capacity between East Coast of U.S. and Western
Europe]
o Connectivity between multi-terabit U.S. & European networks
o Integrated sub-sea and terrestrial network
- Operated and managed as one
o Ability to take advantage of regulatory and technical environment
o Ability to continually refresh network and drive costs down
<PAGE>
<TABLE>
<CAPTION>
Asia
Level 3 Is Positioned To Benefit
From Asia's Rapidly Growing Demand for IP Based Services
<S> <C> <C> <C> <C>
Country Population (000s) Internet Growth Rate (%) Number of Users
Penetration (%) (000s)
Japan 125,100 17.8 35.5 22,392
Korea 68,271 9.8 55.0 6,691
Taiwan 22,113 18.5 42.0 4,090
Hong Kong 6,100 32.8 28.3 2,000
China 1,220,000 0.1 74.9 1,220
Graphic indicates that Level 3 Markets are top 4 markets on chart.
Source: IDC Report (11/22/99), Ovum Internet Market Forecasts, Level 3 Estimates
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Regulatory Environment
<S> <C> <C> <C>
Local Facilities International Facilities Data Services
Japan Open Open Open
Hong Kong No New Local Facilities Licenses For Entities Open
Licensed Until 1/1/2003 Bringing New Cable
Capacity to Hong Kong
South Korea Maximum 49% Foreign Maximum 49% Foreign Open
Ownership Ownership
Taiwan Market Opening July 1, Market Opening July 1, Open
2001. Maximum 60% 2001. Maximum 60%
Foreign Ownership upon Foreign Ownership upon
WTO (20% Currently) Upon WTO (20% Currently) Upon
WTO entry likely this WTO entry likely this
year year
Singapore No Licenses Currently Policy Under Review Open
Available; Review in 2002
Australia Open Open Open
China Significant Easing of Significant Easing of Significant Easing of
Geographical, Foreign Geographical, Foreign Geographical, Foreign
Ownership and Licensing, Ownership and Licensing, Ownership and Licensing,
Restriction. Full Restriction. Full Restriction. Full
Details Still Being Details Still Being Details Still Being
Finalized Finalized Finalized
</TABLE>
<PAGE>
Asia
Relative Bandwidth Costs are Very High
From To Relative Cost Per STM-1 Mile
New York San Francisco 1
New York London 1
Tokyo San Francisco 6.5
Tokyo Hong Kong 7.7
Hong Kong San Francisco 8.2
Source: Level 3 Estimates
<PAGE>
Asia
[Graphic: depiction of Northern Asia network connected to U.S. intercity
network]
o Tokyo gateway facility secured
o Hong Kong to Tokyo Cable under development
- 1Q01 estimated completion
o Major ownership in US - Japan cable
- 3Q00 estimated completion
<PAGE>
Summary
o Services to Web centric companies in Europe and Asia are a major
opportunity - Very rapid growth - High relative prices
o Level 3 can leverage global customer relationships and service development
o Level 3 is building the first international network optimized for IP in
these markets
<PAGE>
Our People
Kevin O'Hara
Executive Vice President
and
Chief Operating Officer
<PAGE>
Level 3's First Priority Is To
Attract And Keep The Best People
In The Industry
<PAGE>
The NextGen Service Provider Versus The Traditional Carrier
NextGen Service Providers
Entrepreneurial
Flexible, team oriented
Very rapid business cycle
Scalable thru information technology
Emphasizes use of partners and market based solutions
Traditional Carriers
Utility mindset
Highly structured workplace
Slow business cycle
Scalable thru rigid processes
Centrally planned, with custom systems
<PAGE>
Level 3's People
o Entrepreneurial
o Results oriented
o Prefer success based compensation to entitlements
o High degree of technical expertise
o Take responsibility for continuous learning
Think Like Owners
<PAGE>
Level 3's Approach
o Locate in the right place
o Provide the right work environment
o Compensate in the right way
<PAGE>
Compensation Plan
Salary 90% - 95% of competition
Bonus Up to 110% of competition for targeted performance
Benefits Competitive and "market smart"
Long Term Ownership oriented
- Shareworks
- Outperform Stock Options
<PAGE>
Long Term Incentives
Shareworks Stock Grant All employees
Up to 3% annual compensation
Shareworks Match All employees
Up to 7% annual compensation
Outperform Stock Options Granted to all employees
<PAGE>
Outperform Stock Option
o Grants equal in initial value to competitors' grants of standard options
o Four year life
o Granted on rolling quarterly basis
o Value at exercise equal to market price minus strike price, times
multiplier
<PAGE>
Few Companies Consistently Outperform The S&P 500
<PAGE>
Outperform Stock Options
o Aligns management team and stockholder interest
o Properly balances management team and stockholder rewards
- - Stockholders receive S&P 500 return before management participates
- - At maximum outperformance, stockholders receive 75% of extra value creation
o Attracts and retains success oriented entrepreneurs
<PAGE>
The Level 3 Plan Is Working
o Hired executive team with proven record
o Hired 3,850 experienced people
o Receiving average of 500 resumes per week
o Current data base of 35,500 applicants
<PAGE>
Financial Overview
Doug Bradbury
Executive Vice President
and
Chief Financial Officer
<PAGE>
Overview
o Financial Strategy
o Business Plan Funding
o Financial Drivers
o Summary
<PAGE>
Financial Strategy
o Level 3's strategy is to maximize NPV while minimizing financial risk
- Conservative use of debt
- Prefunding of business plan
o Preserving access to capital is key goal
<PAGE>
Capital Acquisition Plan Guidelines
o Diversify funding sources
o Maintain timing flexibility
o Equity is appropriate for up front expenditures
o Debt is appropriate for success based spending
o Substantially prefund logical business phases
o Continue to improve credit quality
<PAGE>
Business Plan Is Logically Phased
o Business Plan requires approximately $13-$14 billion
- Phase 1-5 require $11 billion
Includes $1 billion in transoceanic capacity
- Phase 6 adds $2.5 billion
o Phases designed to service debt without additional capital
<PAGE>
Currently Planned Phases
Cumulative Statistics
Phase Global Metropolitan Global Gateway Space Global Intercity
Markets (sq. ft.) Backbone Miles (1)
1 15 1.1M 9,000
2 31 2.1M 17,800
3 39 2.8M 19,400
4 69 3.4M 19,400
5 69 5.2M 19,400
6 77 6.5M 20,775
[FN]
(1) Excludes undersea cables
</FN>
<PAGE>
<TABLE>
<CAPTION>
Currently Planned Phases
Cumulative Statistics
<S> <C> <C> <C> <C>
Phase U.S. Metropolitan Markets International U.S. Intercity Network International Intercity
Metropolitan Markets Miles Network Miles
1 15 -- 9,000 --
2 26 5 16,000 1,800
3 26 13 16,000 3,400
4 56 13 16,000 3,400
5 56 13 16,000 3,400
6 56 21 16,000 4,775
</TABLE>
<PAGE>
Prefunding Each Phase Minimizes Risk
o Prefunding minimizes both financial and operating risk
o Available liquidity plus undrawn portion of bank facility substantially
prefunds phases 1 thru 4
o Phases 1 thru 4 result in substantial global presence
<PAGE>
Success Based Capital Spending Enhances Value
o Capital spending directly associated with incremental cash flow
o Electronics installed after customer order
o Success in executing strategy
- Increases ROI
- Decreases risk
- Efficient network utilization
- Benefit from silicon economics
<PAGE>
Level 3 Has Balanced Debt And Equity Issuance To Fund The Business Plan
Phase 1 $800 million Initial Cash Contribution
$1.2 billion proceeds from sale of CalEnergy stock
Phase 2 $2 billion 9.125% Senior Notes
Phase 3 $500 million 10.5% Senior Discount Notes
$1.6 billion Common Equity
Phase 4 $1.4 billion Senior Secured Credit Facility
$823 million 6% Convertible Subordinated Notes
<PAGE>
Phases 1 Through 4 Are Substantially Prefunded In Accordance With Capital
Acquisition Plan(1)
[Graphic: Capital Expenditures Pie Chart: Up Front at 56% and Success Based at
44%. Capital Structure Pie Chart: Equity at 53% and Debt(2) at 47%.]
[FN]
Notes: (1) Reflects market value of RCN and CTCO as equity on the balance sheet
(2) Convertible Debt offering treated as debt for ratio purposes
</FN>
<PAGE>
Level 3 Has The Financial Strength To Execute Plan
As of September 30, 1999
Assuming Fully Drawn Credit
($ Millions) Actual Facility
Cash and Marketable Securities $4.218 $5,118
Total Debt $3,983 $4,883
Total Stockholders' Equity $3,531 $3,531
Total Capitalization $7,514 $8,414
Total Equity Market
Capitalization(1) $31,400 $31,400
Total Debt/Book Capitalization 53% 58%
Total Debt/Market Capitalization 13% 16%
[FN]
(1) As of 1/18/00; does not include market value of RCN and CTCO holdings ($2.3
billion)
</FN>
<PAGE>
Key Financial Drivers - Revenue
Key Drivers
o Capacity and dark fiber sales
o Number of markets
o Array of products
o Sales to Web centric companies - 85% of revenue
o Rapidly decreasing unit prices, rapidly increasing volume
o Estimated revenue mix
Transport 20% - 30%
Colocation/IP 30% - 40%
Softswitch 40% - 50%
[Graphic: Telecom Revenue estimates bar graph. 1999 less than $200 million; 2000
$750 million and 2001 $1,700 million]
<PAGE>
Key Financial Drivers - Cost Of Revenue
Key Drivers
o Migration of Traffic from leased to owned facilities
o High Web centric sales ratio
o Increase in gateway space brings more traffic on-net
[Graphic: Telecom Gross Margin % bar graph. 1999 N/A, 2000 25% and 2001 50%]
<PAGE>
Key Financial Drivers - SG&A
Key Drivers
o Headcount and growth related expenses
o Variable expenses dominate over time
o Operating expense efficiency
- Web enabled customer service and provisioning
- Web centric sales channels
[Graphic: Total SG&A As A % of Total Revenue bar graph. 1999 slightly more than
100%, 2000 80% and 2001 65%].
<PAGE>
Key Financial Drivers - CapEx
Key Drivers
o Scope and pace of network construction
o Increased CapEx reflects accelerated network build-out
o Up front to success based capital ratio
o Average depreciable life of approximately 5 to 7 years over time
[Graphic: Telecom Capital Expenditures bar graph. 1999 slightly more than $3.0
billion, 2000 $3.5 billion and 2001 $2.5 billion.]
<PAGE>
Key Financial Drivers - Summary
($ in millions) 2000 2001
Telecom Revenues: $750 $1,700
Telecom Gross Margin: 25% 50%
Total SG&A: 80% 65%
Telecom CapEx: $3,500 $2,500
<PAGE>
Over 85% of All Expenditures Are Invested in The Network Platform(1)
[Graphic: Capital Expenditures at 87% and Operating Losses and Working Capital
at 13%]
[FN]
(1) Cumulative use of cash to positive cash flow.
</FN>
<PAGE>
Level 3 Stock Performance(1)
Current Value of $1000 invested in November 1997
[Graphic: Bar graph showing AT&T at $1,668; MCI WorldCom at $2,234; Sprint at
$2,498; Qwest at $3,223; Level 3 at $9,009; Nasdaq at $2,609 and S&P 500 at
$1,585]
[FN]
(1) From November 14, 1997 to January 18, 2000
</FN>
<PAGE>
Financial Summary
Financial Projections Are Consistent With Level 3's Strategy
o Phases 1 through 4 are substantially prefunded
o Strong revenue growth is driven by increasing market demand for Web centric
services
o High gross margins over time reflect on-net strategy
o High absolute capital expenditure levels reflect on-net strategy and
silicon economics
<PAGE>
Summary
o Level 3 is an Internet infrastructure company focused on the needs of Web
centric companies
o Level 3 has the right strategy to meet these needs
o Level 3 has the right network to meet these needs
o Level 3 has the right services to meet these needs
o Level 3 has the financial strength to capitalize on this substantial
opportunity
