Level 3 Needs to Get a COO Right Away

Implications: 1.      CEO, Jim Crowe, is a good man to have at the top of Level 3 2.      However, in terms of running the company’s day-to-day operations, someone else is needed.   3.      A disproportionate amount of responsibility has been placed on CTO, Jack Waters.

Analysis:  With the exiting of Kevin O’Hara as COO, it is imperative that Level 3 fills that position as soon as possible.  While a lot of O’Hara’s tasks have been given to a talented individual, Waters had a lot to do even before the departure by the executive.  

The new person taking over might be at least slightly overwhelmed by the challenges faced by Level 3 as it fights to shore up additional revenue/profitability.  On the CDN side, with the focus on long-tail content, a lot of capital had to be spent on servers and on the backbone transport to get that up and running to address a market that is not making any money – including for players such as Akamai and Limelight.  Despite buying companies to take out some low-priced competition, Level 3 still has to drop pricing on a regular basis to contend with others in offering bandwidth services.  The management and transport of IP by the carrier has not really taken off yet.   The slowdown in the economy will drive more pressure on costs.  Even with the move to Unity, the question remains will the substantial amount of money to be saved be needed to compete or does it mean it is going to be profitable.  

It is not beyond the realm of possibility that industry analysts will have the same type of  discussion about Level 3 a year from now.  In addition, given its debt levels, the service provider is not likely to be purchased.  However, the company’s strength and ability to survive is still based on the high dependence by the RBOCs on its network.  And there is a lot of legitimate optimism at the company about its future.  

But, it is quite possible that Level 3 cannot transform itself to a healthy financial state on its own, but as suggested in another analysis, the marketplace around it will need to change in order to give the carrier an opportunity to turn things around relatively quickly.  Until that time, there might continue to be a rather stagnant situation.