T1 and MPLS.com

NEW YORK, April 28 (Reuters) – Level 3 Communications Inc (LVLT.O) posted a narrower quarterly loss on Tuesday, helped by cost cuts, but the telecommunications service provider’s revenue fell as demand weakened during the recession.

The company, whose shares fell as much as 13 percent, also said it would cut 150 jobs, or 3 percent of its workforce, in the second quarter.

It posted a loss of $132 million, or 8 cents per share compared with a loss of $190 million, or 12 cents per share, in the year ago quarter.

Revenue fell 10 percent to $980 million.

Analysts on average had expected a per share loss of 8 cents on revenue of $1.026 billion, according to Reuters Estimates. Level 3 had warned in February that it expected to suffer in the near term as enterprise customers slow spending due to the weak economy.

The company blamed the revenue fall on disconnections by some key carrier customers as well as usage declines and customer defections among enterprise clients. It also said currency exchange rates hurt its European business.

But Piper Jaffray analyst Christopher Larsen said that investors were still hoping for a better result.

“Generally it was a little disappointing,” he said noting that Level 3 earnings before interest, tax, depreciation and amortization (EBITDA) was $4 million below his expectation of $254 million.

“Some of (the weakness) is going to have come from foreign exchange but it also looks like there was some weakness in their wholesale markets group,” Larsen said.

On Tuesday, Level 3 reiterated its outlook for 2009 adjusted earnings before interest, tax, depreciation and amortization to grow from the $988 million in 2008, and free cash flow to be positive for the full year.

The company said it was seeing signs of stabilization in its core communications business revenue and that while revenue pressure would continue in the second quarter it would be at “a significantly moderating rate.” 

“While we continue to be cautious, we are starting to see some signs that customers are beginning to buy again after a period of a sales slowdown which we began to experience in the third quarter of last year,” said Chief Executive James Crowe in a statement.

The company said would keep up its focus on cost-cutting including its workforce reduction plans, which will result in a $6 million to $7 million severance charge in the second quarter.

It had told employees about the plans by the end of last week, a spokeswoman for the company said.

Chief Financial Officer Sunit Patel said that capital expenditures of $78 million in the first quarter were “a good indication of the quarterly trend for the year.”

Shares were down 7 cents at $1.06 in morning trade on Nasdaq after falling as low as 98 cents at one point. (Reporting by Sinead Carew; Editing by Derek Caney, Dave Zimmerman)

Isn’t it remarkable how other CLEC’s are laying off employees, cost cutting, and still losing market share?

I’m glad I’m with NuVox who is hiring, expanding their networks, and managing their finances the right way.

For more information on how you can be serviced by NuVox, contact me at jkirby@nuvox.com.

So Does Google CEO Eric Schmidt

In Google’s earnings call, CEO Eric Schmidt is quoted as saying:

“Without commenting specifically about Twitter … you could imagine that … it could be a channel for product information, marketing information, real-time information for which you can hang advertising products, whether it’s a text ad or a video ad or so forth off of it … It strikes me that’s a logical strategy for them to pursue and something that we would be very happy to pursue with them and all other players in that space.

Apr 1, 2009 10:42 AM, By Ed Gubbins

Cloud computing holds enormous potential for telecom service providers if they get aggressive about driving technological innovation there

“I believe cloud computing is going to be the real trend we’ve been waiting for,” Nolle said.

Leveraging the network

One of the questions for telecom service providers is to what extent they can leverage their position at the bottom of the value chain in a cloud-based world – i.e., the infrastructure providers – to move higher up the value chain, toward the platform and application levels that allow for more differentiation and more value creation for end users. “[Carriers'] ability to add value, charge for value and differentiate from others is more challenged because they’re at the bottom,” said Andy Ingram, vice president of product marketing and business development for Juniper’s data center business. “Amazon is in all three levels. The challenge for network service providers is: Can they move up the value chain?”

Some would say carriers could begin to one-up players like Amazon by using the service quality control that their networks provide. For small businesses using Amazon’s cloud services, the quality of the service is determined in part by each business’s own broadband connection, over which Amazon has no control. In that sense, Amazon’s is a more “ad hoc, fly-by-night” approach, Ingram said. “On a more permanent basis, I can do something like MPLS or VPLS to provide a more secure, more traffic-managed connection between the data center elements.”

Earlier this year Juniper and IBM demonstrated a case in which a carrier with a data center could scale its cloud power dynamically by redistributing lower-priority computing tasks, when needed, to a partner’s data center over a VPLS network.

“I might have my own data center and pay IBM to be my overflow site,” Ingram said. “I’ll pay IBM a base amount to have the right to use [the overflow site], and then when I actually use it, I’ll pay a higher rate.”

Juniper’s rival Cisco might say that integrating the network with the storage and computing functions most critical to the cloud – as their recent new product offering proposed — could let carriers insert themselves more deeply into the cloud value chain. But critics have argued that the integration strategy Cisco announced recently seems more like a bid to expand the vendor’s own market share than one to meet its customer’s demands.

“My gut [feeling] is that [Cisco's data-center move] is a failed strategy in the long run,” said Cogent’s Schaeffer, a longtime Cisco customer. “There’s an advantage to a holistic approach toward optimization, but I don’t necessarily think the right approach is to build these God boxes that perform multiple functions because they tend not to be very good at any of them. The network operator can [leverage their natural advantages more by integrating the network with storage and computing], but I don’t think it needs that device to do it. It just takes a little bit of gray matter on your shoulders and some hard work.”

Moreover, rather than ask whether service providers can climb the cloud services value chain, Schaffer asks whether they should.

“It’s not clear to me that moving up the stack is a better place to be,” he said. “If you’re a network operator, your inherent competitive advantage lies in your network, not necessarily in the guys in white lab coats running applications.”

Still, several sources say telecom equipment vendors are lagging behind in the race to drive cloud-enabling technology.

“The vendors are all kind of at first base at best,” said Dave Schaeffer, chief executive officer of Cogent Communications, a prolific supplier of network bandwidth to data centers. “They’re very embryonic in this.”

Thus far, telecom equipment vendors have focused too much on the mere connectivity aspects of the cloud, Nolle said, and not enough on a more holistic view toward its most important property: the efficiency with which resources are allocated for, and consumed by, applications.

“The network is the connection fabric that builds the cloud for cloud computing, but a bunch of servers on a network and a cloud are distinguished from one another by the effectiveness with which you can allocate the resources from the pool to support the mission of the application — that’s the key ingredient,” Nolle said. “Just because I can connect to a resource in Singapore that’s half the price doesn’t mean that if I put it into this application, I’ll get a satisfactory performance. Like in origami, gluing pieces together to create something is definitely essential to a cohesive structure, but having some notion of what the hell you’re trying to build is even more essential.”

Even those most recent innovations in data-center telecom equipment are weakest when it comes to the process of smart, efficient resource allocation that Nolle says is the most important aspect of cloud computing – a function he calls “brokerage.”

Some of the biggest names in cloud computing – such as Amazon.com and Salesforce.com – got there quickly by blazing a trail in brokerage. Amazon.com’s Elastic Compute Cloud service (aka EC2) – beta trialed last August and available since October – is sold in units of virtual machinery the company calls “instances” that users can easily and dynamically turn up and down, paying only for what they consume. Amazon uniquely divides clouds into regions and availability zones, and it uniquely employs a concept called “elastic IP,” which sits in the gap between static and dynamic IP. Meanwhile, Salesforce.com, another cloud pioneer, developed a proprietary system so efficient that it is able to serve more than 55,000 enterprise customers – 1.5 million individuals – using only 1,000 servers. (And since it is mirrored, the true usage is closer to 500 servers, or 1 per every 110 enterprises.) And both Amazon and Salesforce.com achieved these results with essentially no more advantage over telecom service providers than their own ambition and aggressiveness.

“A telco looking to solve the cloud computing problem makes up a long list of business goals and posts his bill on the door of the cathedral,” Nolle said. “Then he waits for vendors to come up and read it and give him the answer to his prayers. Amazon’s on the streets preaching. They’re solving the problem, not asking someone else to solve it for them. Amazon has broken ground [in cloud computing] with every blessed step they’ve taken. And every step they took is a step the [telecom] service providers could have taken.”

Service provider steps

Verizon Business, which recently expanded its data-center virtualization services in partnership with VMWare, has announced plans to launch its own cloud computing services in June. When it does, it will look to take advantage of its vast network, including dozens of data centers worldwide. It will point to differentiators like security and its long history of managed data networking services. And it will give customers a choice of virtualized or dedicated infrastructure.

“Our approach is to pursue a wide variety of models and fitting those to customers’ existing situations, maybe where they already made investments,” said Mike Marcellin, Verizon’s vice president of global managed solutions. But customer control will be a major part of the offering. “[Customers] will be able to provision their computing resources dynamically. They can turn those facilities up, turn them down, determine how failover can be managed and do so in a model that allows them to only pay for the resources they use on a daily basis.”

For the most part, large enterprises still want dedicated infrastructure, but perhaps the most significant opportunity presented by cloud computing is the prospect of providing shared “virtual” resources to a sea of smaller businesses that can’t afford the dedicated kind.

Marcellin admits that the telecom sector is playing “catch-up” in the cloud game. But as the space is young and untested, he doesn’t necessarily think taking the lead would have been wise, either. “If it was a tradeoff between having a market-leading solution in mid-2009 versus launching a fairly basic solution for Web developers in early ‘08, I think we made the right choice,” he said.

If telcos have waited too long to delve into the cloud, it may be because it’s so far been unclear how viable the space will ultimately prove to be. To telcos, the promise of the cloud may sound eerily familiar to those of an entire breed of so-called application service providers, or ASPs, which emerged in the 1990s but failed to achieve the revolution in service delivery they foretold. However, one of the key differences between the 90s and today, several sources point out, is that ASPs were limited by much slower broadband access speeds and other obstacles that no longer exist. On the contrary, cloud computing may be coming along at perhaps the perfect time.

“I believe cloud computing is going to be the real trend we’ve been waiting for,” Nolle said.

Leveraging the network

One of the questions for telecom service providers is to what extent they can leverage their position at the bottom of the value chain in a cloud-based world – i.e., the infrastructure providers – to move higher up the value chain, toward the platform and application levels that allow for more differentiation and more value creation for end users. “[Carriers'] ability to add value, charge for value and differentiate from others is more challenged because they’re at the bottom,” said Andy Ingram, vice president of product marketing and business development for Juniper’s data center business. “Amazon is in all three levels. The challenge for network service providers is: Can they move up the value chain?”

Some would say carriers could begin to one-up players like Amazon by using the service quality control that their networks provide. For small businesses using Amazon’s cloud services, the quality of the service is determined in part by each business’s own broadband connection, over which Amazon has no control. In that sense, Amazon’s is a more “ad hoc, fly-by-night” approach, Ingram said. “On a more permanent basis, I can do something like MPLS or VPLS to provide a more secure, more traffic-managed connection between the data center elements.”

Earlier this year Juniper and IBM demonstrated a case in which a carrier with a data center could scale its cloud power dynamically by redistributing lower-priority computing tasks, when needed, to a partner’s data center over a VPLS network.

“I might have my own data center and pay IBM to be my overflow site,” Ingram said. “I’ll pay IBM a base amount to have the right to use [the overflow site], and then when I actually use it, I’ll pay a higher rate.”

Juniper’s rival Cisco might say that integrating the network with the storage and computing functions most critical to the cloud – as their recent new product offering proposed — could let carriers insert themselves more deeply into the cloud value chain. But critics have argued that the integration strategy Cisco announced recently seems more like a bid to expand the vendor’s own market share than one to meet its customer’s demands.

“My gut [feeling] is that [Cisco's data-center move] is a failed strategy in the long run,” said Cogent’s Schaeffer, a longtime Cisco customer. “There’s an advantage to a holistic approach toward optimization, but I don’t necessarily think the right approach is to build these God boxes that perform multiple functions because they tend not to be very good at any of them. The network operator can [leverage their natural advantages more by integrating the network with storage and computing], but I don’t think it needs that device to do it. It just takes a little bit of gray matter on your shoulders and some hard work.”

Moreover, rather than ask whether service providers can climb the cloud services value chain, Schaffer asks whether they should.

“It’s not clear to me that moving up the stack is a better place to be,” he said. “If you’re a network operator, your inherent competitive advantage lies in your network, not necessarily in the guys in white lab coats running applications.”