Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Level 3 Communications, Inc. (NYSE:LVLT)

Q2 FY08 Earnings Call

July 24, 2008, 10:00 AM ET

Executives

Valerie Finberg - VP, IR

James Q. Crowe - President and CEO

Sunit Patel - EVP and CFO

Neil Hobbs - EVP, Operations

Analysts

Michael McCormack - JPMorgan

John Hodulik - UBS

Ana Goshko - Bank of America

Colby Synesael - Merriman Curhan Ford Corporation

Jonathan Schildkraut - Jefferies & Co

David Dixon - FBR Capital Markets

Simon Flannery - Morgan Stanley

Timothy Horan - Oppenheimer & Co

Murray Arenson - Janco Partners

Frank Louthan - Raymond James

Thomas Watts - Cowen and Company

Christopher Larsen - Credit Suisse

Operator

Good day and welcome to the Level 3 Communications Incorporated Second Quarter 2008 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Valerie Finberg, Vice President of Investor Relations. Please go ahead.

Valerie Finberg - Vice President, Investor Relations

Thank you, Jessica. Good morning, everyone, and thank you for joining us for the Level 3 Communications second quarter 2008 earnings call. With us on the call are Jim Crowe, President and Chief Executive Officer and Sunit Patel, Executive Vice President and Chief Financial Officer, who will provide remarks on the results of the quarter. Also joining us is Neil Hobbs, Executive Vice President, Operations who will be available during our question-and-answer session. Buddy Miller is out of the country today.

On today's call, we will be referring to certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the most comparable GAAP financial measures are available in the press release and on our website.

I would also like to remind all participants that information we will discuss today contains financial estimates and other forward-looking statements that are subject to risks and uncertainties. Actual results may vary significantly from those statements. A discussion of factors that may affect future results is contained in Level 3's filings with the Securities and Exchange Commission. With that, I'll turn the call over to Jim.

James Q. Crowe - President and Chief Executive Officer

Thanks, Valerie. In our prepared remarks, Sunit will a discussion of financial results for the quarter, and expectations for the year. I'll cover market demand, pricing trends, and operational highlights for each of our market groups. During our remarks, we'll also cover in some detail the progress we've made in achieving what we identified as the two key goals for 2008. The first Sunit will cover and that is our goal to generate sustainable positive free cash flow as soon as reasonably achievable. I'll talk about increasing our sales and installation rates. The match, the already demonstrated demands for our services. After that Sunit, Neil Hobbs and I will take questions. Sunit?

Sunit Patel - Executive, Vice President and Chief Financial Officer

Thank you, Jim. We are pleased with our results this quarter. Core Network Services revenue growth, network expense optimization and operating expense reductions grow significant adjusted EBITDA growth. In addition, tight management of capital expenditures contributed to positive free cash flow performance for the quarter. We expect to be free cash flow positive for the balance of the year. We completed the sale of the Vyvx ads distribution business during the quarter for gross and net proceeds of $129 million and $123 million, respectively. In our previously issued guidance, we expected about $10 million of adjusted EBITDA and cash flow contribution from our ads business for the second half of 2008.

Turning to revenues. Core Communications revenue. Core Communications Services revenue excluding the benefit of the $12 million in deferred revenue we discussed in the press release and excluding Vyvx ads distribution revenue from all periods was $954 million and grew 8% over last year and 1% sequentially. More importantly, Core Network Services revenue. The key value driver for us with 80% incremental gross margins grew 7% over last year and 2% sequentially. Compared to the previous quarter, Core Network Services revenue was flat. Core Network Services revenue included $129 million of local and enterprise voice revenue.

Also Voice Services revenue, a business which we manage for gross margin contribution with incremental gross margins of approximately 30% was $175 million, up 14% over last year and down 5% sequentially. We expect the sequential performance of Core Network Services revenue will continue to improve over the course of the year consistent with past year's performance.

In addition, our investment in quota-bearing sales headcounts since the beginning of the year is also expected to contribute towards Core Network Services revenue growth later this year. Also Voice Services revenue performance will remain volatile within a range and is not expected to have much of a positive or negative impact to our gross margin for the balance of the year. The year-over-year Core Services revenue growth by market group excluding the deferred revenue of $12 million and the Vyvx ad revenue was about 7% for the Wholesale Markets Group, 2% for the Business Markets Group, about 9% for the Content Markets Group and 41% for the European Markets Group.

In constant currency terms, our European Market Group grew 29% year-over-year. Other than SBC Communications revenue, in the second quarter, other Communications Services revenue was $46 million, down 35% from the second-quarter 2007 as a result of expected declines in managed modem revenues. SBC Contract Services revenue was $54 million in the quarter, down 29% from a year ago.

As anticipated, AT&T satisfied the remaining $15 million in gross margin commitment under the agreement. This means, they have satisfied the minimum take or pay commitment, although they can continue to purchase services under the agreement. Given that this commitment has been met, beginning in the third quarter, we will report this revenues under Other Communications Services revenue and eliminate the SBC Contract Services category from our reporting going forward.

Communications deferred revenue decreased to $932 million at the end of the second quarter of 2008 compared to $951 million at the end of the second quarter of 2007. But it increased from $927 million at the end of the first quarter of 2008. These numbers reflect the $12 million adjustment described in our press release.

Communications cost of revenue was $442 million in the second quarter as compared to $437 million in the year earlier quarter and compared to $459 million in the first quarter. Gross margin percentage was 58.8% in the second quarter of 2008 compared to 57.8% in the second quarter of 2007 and 56.9% in the first quarter of 2008.

Our gross margin was $630 million in the second quarter of '08 compared to $598 million in the second quarter of 2007 and $607 million in the first quarter of 2008. Excluding the effect of the $12 million in deferred revenue, the sequential improvement in gross margin was a result of network optimization efforts and favorable revenue mix changes as we added higher margin Core Network Services revenue and less lower margin SBC and Wholesale Voice revenues.

For the remainder of the year, gross margin performance will be driven mostly by Core Network Services revenue growth and the mix of revenue changes. Continued network optimization savings are expected to provide some additional benefits.

Our Communications SG&A expense excluding non-cash stock-based compensation charges and restructuring and impairment charges was $373 million for the second quarter of 2008. This represents a decline in SG&A from $403 million in the second quarter of 2007 and from $395 million in the prior quarter.

Our second quarter results reflect accelerated execution on our cost-reduction initiatives. Therefore, for the remainder of 2008, we expect to see a lower sequential reduction in our SG&A expense compared to what we saw in the second-quarter. In the third quarter, SG&A reductions will appear modest as the run rate reductions will be somewhat offset by the seasonal summer increase in utility expenses as air-conditioning loads at our data centers pick up.

Fourth quarter SG&A should show a better sequential performance due to the cumulative run rate reductions in SG&A over the second half of the year combined with a reduction in utility expenses to normal levels. The reductions are coming from all areas ranging from headcount reductions, moving work to business solution partners, reductions in discretionary expenses and reductions in non-headcount expenses.

As we have previously indicated, in absolute dollar terms, operating expenses for all of SG&A for 2008 should show close to mid-single digit percentage decline compared to 2007. Included in second quarter 2008 SG&A costs, restructuring costs was $4 million of severance included in their operating cost was $4 million of severance cost.

Adjusted EBITDA. Consolidated adjusted EBITDA was $251 million during the quarter, a 30% increase over $193 million in the year earlier quarter. For the first quarter of 2008, consolidated adjusted EBITDA was $211 million. Communications adjusted EBITDA margins increased to 23.6% in the second quarter of 2008, up from 18.7% in the second quarter of 2007 and up from 19.3% in the previous quarter. Capital expenditures. As we indicated in our press release, we expect capital expenditures in 2008 to be 11 to 12 % of revenue, down from 12 to 14% as previously expected.

Cash flow. We are pleased to report positive consolidated free cash flow of $4 million in the quarter compared to a negative $141 million in the second quarter of last year and negative $160 million for the first quarter of 2008. We now expect to be free cash flow positive for the remainder of 2008 and continue to expect to be free cash flow positive for 2009.

As of the end of the second quarter, we had $666 million in cash and marketable securities, resulting from our positive free cash flow and the completion of the sale of our Vyvx ads business for approximately $123 million in net cash proceeds.

Turning to our balance sheet. Our liquidity will continue to improve over the remainder of the year. We have more than sufficient cash to cover the $362 million in September 2009 debt maturities and expect to refinance our 2010 debt maturities well ahead of the maturity dates.

Our run rate annualized adjusted EBITDA is now at about $1 billion and should continue to improve. Our equity holder friendly buyers [ph] on any refinancing transactions remains consistent with the financings we did last year.

With that I'll turn the call over to Jim.

James Q. Crowe - President and Chief Executive Officer

Thanks Sunit. As we've said for a number of quarters now, demand for our products remain strong across all our key markets.

We continue to see a rapid increase in Internet video delivery. The key trend to watch is the movement from low resolution short-form content to full-screen longer form content, both streamed and downloaded. According to comScore, this form of content has increased from essentially zero last year to mid-single digit percentages of the market, and that figure does not include downloaded video from such companies as Apple or Amazon.

We benefit directly from these trends since we are a leading provider of both the connection to the Internet from the owners of content and connections to broadband networks, which consumers utilize. We also have robust CDN offerings which are required for IP delivery of large file-size content. This combination makes us somewhat unique. Wireless service providers also continue to be a major [inaudible] and growing source of demand. A third and an increasingly important source of demand is our European markets group. We are the largest IP provider in Europe and our capabilities and cross-border facilities continue to be a real differentiator.

Across most of our products the pricing environment remains very healthy as evidenced by the continuing stability of our incremental margins. Our transport and infrastructure services, including long haul and metro dark fiber, wavelengths, private line and Ethernet-based services, prices are generally stable, and in some cases such as co-location and metro fiber, are actually up in absolute terms. This dynamic is increasingly apparent, that is, an increase in actual prices as one moves closer to the fiber and closer to metro and individual points of traffic aggregation.

IP and data services, including high-speed IP, continue to display a somewhat different dynamic. For high-speed IP, we expect price declines to continue in the 25% to 30% annualized range. Ethernet and BPM service pricing has been stable, reflective of a much newer product with strong demand. Another trend is worth a comment. We, I think, like most providers are seeing quarter-to-quarter variability and demand across specific product families given the increasing trend towards cross product substitution by customers.

This fungibility is particularly true between waves, private line, Ethernet services, high-speed IP and increasingly PDM services, and points to the importance of having a complete set of services that meet customers rapidly changing needs. I would note that we believe industry reports of slowing or increasing demands for certain service is often explained by customers shifting between various services or perhaps even to dark fiber-based solutions rather than actual fluctuations in overall aggregate demand. Finally, voice service pricing remains stable to slightly down across the board.

I will now discuss trends for each of our market segments. Our European market group, which generates about 9% of our core communication services, continues to grow at very healthy rates; as Sunit mentioned, approaching 30% on an annualized basis excluding foreign exchange benefits. We plan to continue to expand our network presence in Europe and see a continuing opportunity to grow at very rapid rates. Our Content Markets Group contributes about 10% of our Core Services revenue and is expected to be a major contributor to growth in future years.

Since the term CDM is used in a variety of ways, I'll define what market our services are aimed at. We are focused on IP optical based distribution of large objects, such as video, games and software. Our services do not generally address the market for web page acceleration, e-commerce services et cetera which are the most... the more traditional services offered by CDM providers.

A large object market is not large today in dollar terms, but given the rapid adoption of online stream to downloaded media I discussed earlier, we like many others think that such services will be an increasingly important part of our service portfolio. We think the keys to success in this market include low-cost bandwidth, appropriated cited server infrastructure to store content, innovative services which enable owners to monetize their content, intelligent traffic management to distribute content in an economically efficient manner, and the intellectual property rights, that is the patents which enable you to operate in this rather litigious market. We believe we are rather uniquely positioned to bring all of these competitive success factors to the market.

Our Business Markets Group contributes about 25% of our Core Services revenue and represents at least in the short-term a very large market opportunity. This unit was probably most affected by our previous provisioning problems and by our deliberate repositioning of our sales force, which I will discuss more in a bit. We expect to see accelerating growth from this group, both our normal seasonal increases which we expect... which we experience each year and as newly hired sales people become more productive.

Our Wholesale Markets Group, 56% of our Core Services is a unit where we sell building block services, which cable companies, wireless companies, carriers and other major users of bandwidth build into their capabilities to serve their customers. The breadth of our offerings are unmatched and are valued by our customers who depend on these network elements to reliably serve their customers.

As I mentioned earlier, our ability to meet the changing needs of cost of consumers... major consumers of bandwidth, these purchases can rapidly shift from one substitutable service to another is unique and valued. I've said in number of forums that our operational goal for this year was to increase sales and installation rates to match the clear demand for our services.

Last quarter, I reported that we believed that our provisioning problems were largely behind us. And that we began taking advantage of that fact by increasing our sales force. We ended 2007 with approximately 400 quota-bearing sales representatives and we have planned to increase that number to approximately 500. For our Wholesale, European and Content Markets Group, we have largely achieved our targets and in Europe, actually plan to increase the number of quota-bearing sales force even further.

Within our Business Markets Group, we have generally achieved our targets for hiring new sales force. However, we have had a higher involuntary turnover in this group since we need a disciplined technically skilled set of individuals to sell higher margins on-net services.

As a result, we still have about 20 open positions, which we expect to fill in the coming months. As we've said before, it does take some time for new sales representatives to achieve full productivity. But we expect particularly in our Business Markets Group net sales overtime will increase proportionately to headcount increases.

The improvement in provisioning I described on the last call and in number of other forums has occurred within our current legacy processes, that is those processes that we at Level 3 and our acquired companies has used for an period of time. And with some exceptions, we are largely utilizing these processes and systems today. At the same time, we are on track to migrate to our Unity processes and systems over the course of this year.

As indicated last quarter, we expect that by year-end more than two-thirds of our high-margin Core Network Services revenue will be handled by this platform and we are on track to achieve this goal. This is the important development since we believe that we can further increase sales, increased margins and improve our customer experience as Unity is deployed.

With that, Sunlit, Neil Hobbs and I would be happy to take questions and answers. Operator, would you please describe the process for Q&A.

Question and Answer

Operator

[Operator Instructions]. And we will take our first question from Mike McCormack with JPMorgan.

Michael McCormack - JPMorgan

Hey, guys. Thanks. Couple of things. First on the revenue side, I mean, it sounds like from a lot of carriers, who has had a few data points out there so far this quarter that enterprise seems to be weakening a bit. So just wondering what the read through is on Business Markets Group. And there was also with someother competitors/peers talking about traffic slowing. And I just... I was trying to get a sense for revenue acceleration in the back half which I think is fairly critical for you guys. With that as a backdrop and a toughening economy, how we can get a little more comfort on that.

And second, Wholesale Voice seems to have been a bit of a grower here and I know that you have identified that it should be relatively flat year-over-year. So, I guess, the first question is, has there been any left to EBITDA recognizing it is a fairly low gross margin business. And secondly, why would we see that down so much in the second half, and you are looking at probably at 30 million per quarter take down to the second half on Wholesale Voice. What would drive that down? Thanks.

Sunit Patel - Executive, Vice President and Chief Financial Officer

Well, it's Sunit. Think about that last question, while I am answering the first three because I'm not sure we tracked that one. But with respect to enterprise, we have not seen any weakening in demand and as we've said quite a number of times. We have... we estimate about 3% of the addressable market, the market that we can address with our targeted gross margin goals, that is largely on that services. We have seen no weakening in demand period.

James Q. Crowe - President and Chief Executive Officer

With respect to traffic, I'd say again, that one attribute traffic in aggregate and that increasingly we're seeing customers substitute Private Line, Waves, Ethernet, IP VPN's, content distribution services and high-speed IP services one for the other. And we have noted that certain of our competitors who mention perhaps weakening in one service for another generally are those who have a limited or narrow product line. We've noted that the broader service providers, for instance, AT&T yesterday and Level 3 continued to note very strong overall aggregate demand. And we have seen no work weakening in that trend.

It does though underline the importance of having a broad service portfolio particularly those services that meet new emerging kinds of demand. Ethernet, I have mentioned a number of times, we think for the foreseeable future is the protocol of choice, not just for enterprise, but also increasingly for wholesale providers. We find a great deal of substitutability up in the content distribution, down in the Private Line and Waves. So, quarter-to-quarter fluctuations, we wouldn't pay much attention to, we see no reduction in aggregate overall demand nor in the drivers of aggregate overall demand. Sunit, you want to talk about voice?

Sunit Patel - Executive, Vice President and Chief Financial Officer

Yeah, couple of things. One back to the revenue question and then to the Wholesale Voice one. I think again, we are at this point in the year looking at our sales funnel and demand across our market groups and as I indicated in my remarks, we see the revenue growth rate picking up, Core Network Services revenue growth rate picking up over the rest of the year, and we feel pretty good about that.

On the Wholesale Voice side, we have always indicated that's a volatile business up or down, it doesn't really drive the gross margin, because incrementally it's a 30% gross margin business. But stepping back, I don't see that our performance for Wholesale Voice in the second half of the year will be too much different from the first half of the year. So, there might have fluctuations in any given quarter within a range. But, it's still a good base of business and we feel good about it.

James Q. Crowe - President and Chief Executive Officer

I would emphasize Sunit's point about revenue. If you adjust our Core Network Services revenue both for the one-time benefit of a... of the deferred revenue increase, but also for the elimination of ads for seasonality, for the reduction in Wholesale Voice et cetera in the Wholesale Markets Group, we see an increase quarter-over-quarter, first quarter to second quarter that is clearly supportive of the kind of guidance we have given, and give our historical increase quarter-over-quarter-over-quarters, first, second, third, fourth, which we'd experienced year-after-year. We are pretty confident about where we sit today.

Sunit Patel - Executive, Vice President and Chief Financial Officer

Yeah, we were flat... last quarter we... our Core Network Services revenue performance was flat Q4 to Q1. It's picked up to 2% Q1 to Q2, and as we have said it will pick up some more for the rest of the year.

Michael McCormack - JPMorgan

So, you had pressure from Q4 to Q1. I guess it looks like the... if you normalize everything for this quarter, your $779 million, which is lower than the 4Q number. Right?

James Q. Crowe - President and Chief Executive Officer

It's Q4 to Q1, yes.

Sunit Patel - Executive, Vice President and Chief Financial Officer

Are you talking about Q4 to Q1?

Michael McCormack - JPMorgan

No, this quarter $779 million is the normalized number and I think that's lower than the 4Q number on Core Network. Right? So, I guess, I am just trying to figure out how much of this is seasonality versus other factors?

Sunit Patel - Executive, Vice President and Chief Financial Officer

No, as I said... I mean again focusing on Core Network Services which is the key value driver.

Michael McCormack - JPMorgan

Right.

Sunit Patel - Executive, Vice President and Chief Financial Officer

The performance Q4 to Q1 was flat. Q1 to Q2 is up 2% and we think that sequential percentage increase will improve for the rest of the year.

James Q. Crowe - President and Chief Executive Officer

Okay next question.

Operator

We'll go next to John Hodulik with UBS

John Hodulik - UBS

Okay great, thanks guys. You guys talked about some of the savings you saw on the SG&A side. Could you comment on the savings on the cost of goods side which, I guess... that just represents payment to other carriers. But you saw some nice sequential savings there so that it can continue throughout the rest of the year. And then getting back to the last question a little bit the... on the pro forma number, we've got the pro forma sort of year-over-year growth in the second quarter here of 7%, what was the pro forma growth in the first quarter?

Sunit Patel - Executive, Vice President and Chief Financial Officer

Yeah, the first question on the cost of goods sold side. We had a pretty good quarter from network optimization savings. This is continuing from all the acquisitions we did, some of these cycles, savings are long cycle type savings. But I think as I indicated in my comments, we'll see some more savings from network optimization, as we described it on the cost of goods side or cost of sales side, but they will be smaller than what we've seen from the first quarter to the second quarter.

The driver for gross margin for the rest of the year will basically be the growth in Core Network Services. They will be the big driver. We will get some additional benefit from optimization. What that means as we've indicated in our past presentations that the incremental gross margin for changes in Core Network Services is about 80%. The incremental gross margin up or down on the Wholesale Voice side is about 30%. The incremental marginal loss from declines and other revenues is about 90%, the incremental gross margin loss form SBC revenue declines about 50%. So that... so based on your forecast for revenue that gives you a pretty good idea of what gross margin performance would be, added on top, there will be a little bit of network optimization savings.

I think on your other question, when we reported year-over-year revenue growth, I think in the first quarter, we said that year-over-year revenue for growth for Core Services was 10%, and that's for Core Network Services which is really more important metrics for us is about 8%.

John Hodulik - UBS

So that 8% compares to the 7%. I'm just trying to get on a pro forma apples-to-apples there. Okay great. And then last, just one more in terms of CapEx, very low, it seem like very... quite a bit lower CapEx number than we have expected, and then the guidance sort of suggest I think that what we expect for the year, we've already seen. Any opportunity to cut CapEx versus sort of the plan from here in the second half, considering that the second quarter number was so low?

Sunit Patel - Executive, Vice President and Chief Financial Officer

No. As we said in the press release, a lot of that was driven by supply chain, better supply chain management and we think... remember our previous guidance was 12% to 14%. So, we think with some of those improvements, this year will be at 11% to 12%, I think we continue to be comfortable with that for the year as a whole. The capital expenditures in any given quarter or quarter-to-quarter can be little lumpy. So, I think that, stepping back just looking at over the whole year, we think it will be in that 11% to 12% range.

John Hodulik - UBS

Okay great. Thanks.

James Q. Crowe - President and Chief Executive Officer

Next question?

Operator

We will go next to Ana Goshko with Bank of America.

Ana Goshko - Bank of America

Hi. Thanks very much. Two questions. First, on continued consolidation within the telecom space, and your role as a carrier to carrier, wondering if you have done sort of pro forma analysis on what the impact of Alltel's acquisition by Verizon at the end of this year could have on your outlook if Verizon starts to move traffic off of your network on to theirs.

I believe Alltel in the past has shown up in the top... as a top 10 customer when you used to disclose that? And then secondly, just on the EBITDA, I just wanted to make sure I understood exactly, how we are measuring the EBITDA guidance for this year at this point. So, the Vyvx business that you sold, you're including all of the EBITDA that you generated until the date of sale and also the $12 million deferred revenue that's also in your EBITDA guidance for the year?

James Q. Crowe - President and Chief Executive Officer

I will take the Alltel, while you are thinking about that Sunit. With respect to Alltel, we have now a fair amount of experience with other consolidations, combinations, mergers, Ana, you will recall we've been asked this question quite a few times over the course of the last three or four years given consolidation. And I think our answer has been pretty consistent, it's proven out. Anytime there is a consolidation, there is a combination of puts and takes, pluses and minuses.

On the minus side, obviously within service territory, Verizon is going to seek to optimize network move to their own facilities as we would. As that occurs, we actually often see an uptick, as we provide some facilities to help grew at short-term. Longer-term, we often out of service territories see an increase in demand and net-net, we say this each time, given that all of the carriers we're speaking of, our gross margins, pick your number, in the 50% range. It means, as they grow $0.50 of every revenue dollars available, particularly available to companies like Level 3 who are neutral and don't have the kind of strategic conflicts perhaps others do. So, in general, we view consolidation as a good thing. We expected it will continue. We always see pluses and minuses. But as you can see over the course of the last two, three years and as we have said often, the net-net long-term is generally a plus. Sunit?

Sunit Patel - Executive, Vice President and Chief Financial Officer

And on your question on EBITDA guidance, keep in mind that our EBITDA guidance included the contribution of the Vyvx ads business for the entire year. So, I think what we're saying is because of... having sold that business, it was about $10 million of EBITDA and cash flow. We expected out of that Vyvx ads business for the second half of the year that we are not getting. But at the same time, we have the benefit of the deferred revenue we talk about. So, in aggregate, we left the EBITDA guidance alone for the full-year.

Ana Goshko - Bank of America

Okay, that's helpful. Thank you very much.

James Q. Crowe - President and Chief Executive Officer

Next question.

Operator

We will go next to Colby Synesael with Merriman Investments.

Colby Synesael - Merriman Curhan Ford Corporation

Great. I have two questions. One relates to the 2008 guidance, obviously we have to see some type of acceleration in the second half of the year. Just curious, is that coming from your expectations, are we going to see demand pick up or is it really going back to the execution issues you might had earlier this year and seeing those continue has to improve. The other question I have to do is CapEx. Just curious about the conscious decision on your part to cut that back at some point this year, are you guys simply going through your budget and now realizing that you are below that and as a result you are reducing your expectations? Thanks.

James Q. Crowe - President and Chief Executive Officer

Yes, with respect to acceleration as you termed it. We don't view the acceleration as anything more than what we have experienced year after year after year. We... if you take a look at quarter-to-quarter improvements and there is underlying reasons for this. For instance within Content, we always see an up tick in the fourth quarter from our Vyvx based services, there is seasonality and IP, and we always tend to see a slope in the sales ramp that starts in the beginning of the year and grow. But I have a note again what Sunit said, we had a 2% quarter-over-quarter growth if you just compound that out that's the kind of growth we need to reach our targets.

We don't need to see major improvements and we think we can do better than that over the course of the year. We're not predicating it, if I understood your question right on some increase in demand that is customers who are buying or desiring to buy more than they are today. Demand is already strong. Our increase in sales comes from improvements or provisioning, which we've said we have now achieved, and then increases in sales force. We've hired additional sales people, we expect to hire additional sales people and as that occurs, normal sales productivity means increase in sales, we see it in the funnel and that gives us confidence in the future. Sunit?

Sunit Patel - Executive, Vice President and Chief Financial Officer

Yeah. On the CapEx question, again it wasn't cut back as I said is supply chain management. What we mean by that as we indicated in the press release, going to all your warehouse inventories, finding excess capital there, doing a better job of combing through capital network... capacity in the network that wasn't being utilized. So, it's a more efficiency improvement than any kind of reduction as such as we pointed in the press release.

James Q. Crowe - President and Chief Executive Officer

I would also say that if you are growing on the wireline side, this is a good time to be buying equipment. It's a bit of a buyers' market as I'm sure the analysts on the call who cover equipments suppliers realize, we are in a good position now as a buyer... net buyer of equipments. Next call.

Operator

We'll take our next question from Jonathan Schildkraut with Jefferies & Company.

Jonathan Schildkraut - Jefferies & Co

Thank you for taking the questions. I just was wondering if you could give us two items. One, the level of cash that you generated from IRU sales in the quarter? And secondly, it seems like overtime the revenues we are getting under the SBC Contract are paired away, but more recently we have seen some stability, and then it was our sense that there were certain services that you were providing to them, which were stickier than others, and I was wondering if you could give us some color on what was left and I know that...that's just kind of fold into a different revenue group. What was left in terms of the services that you were providing to them, I think it was substantive to how sticky they are? Thank you.

James Q. Crowe - President and Chief Executive Officer

I want to take the IRU question and then Neil you want to take the SBC question.

Yeah. I mean the IRU question is the best indicator as we pointed to you in the past. These are deferred revenue balance. So, our deferred revenue balance went up from Q1 to Q2. So, I think we had a good quarter from an IRU perspective. But again as we've been... if you look at the IRU balances, although in the last couple of years, they have generally been pretty stable in that range. So, I would say it was a good quarter from an IRU perspective, but that performance is usually lumpy and in a given quarter overall for the year, we expect to replace any non-cash revenues be recognized from IRU sales in the past with new IRU sales, we do during the course of the year.

Neil Hobbs - Executive Vice President, Operations

The SBC question is pretty simple to answer. The revenue split between the Wholesale Voice services and the mixture of data services and the decrease you are seeing is that is more from the Wholesale Voice services.

James Q. Crowe - President and Chief Executive Officer

And with respect to how sticky it is that's better directed at SBC, AT&T, it... that has to do with their internal priorities and efforts. It is just hard for us to gauge that. Next question?

Operator

We will next go to David Dixon with FBR Capital Markets.

David Dixon - FBR Capital Markets

Thanks, very much for taking the question. Gentlemen, I wondered if you could elaborate a little more on how you expect to benefit from the cross product substitution by customers. I was seeing in the industry an increasing prevalence among carriers in terms of trading waves for IP transit amongst each other. And we are also seeing on the cable MSO trading of waves to dark fiber. I would think that both of those dynamics would reduce the demand for the recurring revenue opportunities going forward. Where would the offset be there, how should we be thinking about that?

James Q. Crowe - President and Chief Executive Officer

Yeah, it's a good question and it's one that I'll take a minute to answer, because it's a question we often hear. And I will use a specific example in my... to make the point because it does I think it illustrates what happens. My memory, Neil, was the Comcast deal three years ago, do you remember?

Neil Hobbs - Executive Vice President, Operations

Four years ago.

James Q. Crowe - President and Chief Executive Officer

Four years ago, Comcast approached us at the time they were not a large customer of global forays, certainly not in our top 10. As to buy a national dark fiber network, they wish to light it up for their own purposes, connecting their major locations and we have a great deal of internal debate about around the subject you are discussing, the pros and cons. We finally decided to go forward and since that time, Comcast has become a top 10 customer. We've seen that same I used that example, because Comcast doesn't mind us mentioning their name. Other companies are more particular about confidentiality.

We've seen that dynamic repeatedly, where a particular customer between certain locations has carrier like needs and they find that those needs are best served by lower level services, waves or in some cases fiber, and we found that where we do sell those, we then become part in effect of their network and we are the logical supplier of additional services and almost universally that means we see opportunities to see to sell everything for private line waves, Ethernet-based services, transit, voice services, and we hope overtime CDM services. So, we view that very differently today than we perhaps did four years ago. And longer term, we think it is a great benefit to Level 3.

We are somewhat unique in the breadth of our services if you include our ability to provide national fiber footprints between major locations all the way up to voice and CDM services. I can't think of another carrier including our largest competitors who have that breadth of services. So, we can meet what we refer to as the life cycle needs of our customers, the whole breadth of their needs because while between certain locations, they have carrier like needs, other locations their needs are smaller and better and that with higher-level services. So, we think that's the dynamic uniquely suited for Level 3's strengths. Next question?

Operator

We will go next to Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

Thank you, good morning. Sunit, maybe you could comment... a little bit more detail on the refinancing, you have talked about equity friendly, how do you think about convertibles versus debt equity swaps or straight debt or even raising straight equity. And on the cost reduction, can you help us with headcount numbers Q1 versus Q2 and when those happen during the quarter and anything we might see in Q3? Thank you.

Sunit Patel - Executive, Vice President and Chief Financial Officer

Yeah, I mean on the financing. I will just repeat what I said in my remarks that our bias is to do financing than a equityholder. Friendly that's consistent with what we have done more recently and clearly there is nothing more to add that and I think we have a strong bias to that, and I think we feel pretty good that we will be able to do that. On the headcount reductions, they have been coming down a few hundreds every quarter and similarly we saw a decrease again that much of a decrease by a few hundred, it's averaged anywhere from 3 to 415 in that range over the last couple of quarters. So, I think as we have indicated and as I said in my remarks, SG&A expense will continue to come down over the course of this year, and a mid-single digit percentage decline is actually larger in real write-downs because if you remember last year, we didn't pay our full bonuses. So, last year's gross expense run rate was even higher than what we reported. So, I think that part is going quite well.

Simon Flannery - Morgan Stanley

And we will see the same in Q3?

Sunit Patel - Executive, Vice President and Chief Financial Officer

Well, as I said in my remarks that the Q3 reductions will be a little less, because while the headcount reductions and operating expense reductions will continue at the same pace, we will see a seasonal pickup in utility bills as because of the summer temperatures, the air-conditioning loads in our data centers or co-locations sites go up. So then you will see a little more of an amplified improvement in fourth quarter as those utility expenses revert to more normal levels.

Simon Flannery - Morgan Stanley

Great, thank you.

James Q. Crowe - President and Chief Executive Officer

Next question.

Operator

We will go next to Tim Horan with OPCO.

Timothy Horan - Oppenheimer & Co

Thanks, good morning. Jim, can you maybe step back and give us some view of how your customer base kind of divides out now which maybe content providers and enterprise providers and maybe metro versus long haul. And within that how are your sales people kind of targeting out different customer bases. I know it's a broad question. I'm just trying to get a sense where you are more focused on, where the growth is coming from?

James Q. Crowe - President and Chief Executive Officer

Yes I'm going to give you a very high level and ask Neil Hobbs to maybe give you some more flavor. So, it's a good question. Our strength comes and this isn't speculative, we see this every day in sales, in funnel, in conversations with our customers. Our strengths come from our ability to provide a broad range of services over end-to-end facilities.

And we are rather unique in the kind of footprint we have, the investment, which we have identified, the gross property plant and equipment with all the caveats go around that. But gross property plant and equipment over $25 billion. And we are unique in our ability to continue to expand that footprint, since we can amortize expansions either organic or acquired over many different sets of services, not just to see LEC service, not just content, not just wholesale. With that Neil, you might want to comment on where we focus our sales force at metro versus long haul.

Neil Hobbs - Executive Vice President, Operations

Yeah, let me start with the Business Market Group sales force. We are in the middle of our new focus in implementing the focus for that sales force based on three factors. One is the customer base we're chasing and the attractiveness of that customer base to buy both long haul and metro services. And the focus that we have for our sales force to sell either on-net services as primarily, and their portfolio. And thirdly, the capability of our sales force to execute against both of those priorities. So, we've.. as Jim mentioned earlier in his comments, we have changed and are in the process of changing our sales force in BMG and primarily to meet that customer segment base and also to have the skill set that we consider necessary to able to execute against that base.

So, we have been moving more and more of our sales force into Tier 1 and Tier 2 markets where we will believe that customer base is and really downsizing and churning your sales force and markets that were in Tier 3 and Tier 4 markets. We are ahead of schedule in recruitment and with that sales force, but we have a higher level of churn and through quarter two, as we realized the type of productivity levels we needed and skill set needed to recruit for that group of people. And we are finding recruitment very positive. We find ourselves in attractive place for that kind of skilled sales force to join and over the coming quarters, we expect that new sales force in addition to the existing one to further grow our sales.

James Q. Crowe - President and Chief Executive Officer

Yes with respect to content, I am not sure I fully understand your question, but...

Timothy Horan - Oppenheimer & Co

Just wanted to see how focused you are in the enterprise market versus Internet service providers, Internet content providers?

James Q. Crowe - President and Chief Executive Officer

We are focused on the enterprise market and the enterprise market is... at one end, you've got the Fortune 500 including all their managed services, we are not focused on that market. That is the managed services market. The very low-end of the market we think is cable natural space. We are not as focused there. It is that middle part of the market where a company may have two, three, four locations or more, and I'd say the upper-end of the market for standardized services, and that is an increasing market by the way.

We think in general the market's coming more towards us for standardized Ethernet-based services, and we are very focused on that kind of market. That is not simply to use an extreme T1 sale locally. That's a multiple service, multiple location sale and it ties directly into Neil's comments about the kind of sales force we need. That's a great market and we think it's still expanding part of the enterprise market as more and more companies standardize on straight forward sort of a sys that meet are right in our sweet spot. We are focused on content, but as I said in my remarks, the enterprise market, the addressable market for our services we estimate at about $30 billion and we've got $1 [ph] billion of it.

Timothy Horan - Oppenheimer & Co

What percentage of your sales force then is more focused on the enterprise?

James Q. Crowe - President and Chief Executive Officer

I am sorry. Say it again, please.

Timothy Horan - Oppenheimer & Co

Just the percentage of your sales force focused on enterprise versus the content?

Neil Hobbs - Executive Vice President, Operations

It's more like 50%.

Timothy Horan - Oppenheimer & Co

Okay, great. Thanks.

James Q. Crowe - President and Chief Executive Officer

That's 50% of our total quota-bearing headcount, which... that gives you and some sense or the emphasis we are putting on it. And also, Neil, what percentage of that sales force has been with us less than six months?

Neil Hobbs - Executive Vice President, Operations

35%.

James Q. Crowe - President and Chief Executive Officer

... which is a telling number and why we are confident as they become productive, we are going to see an up tick in sales. Next question?

Operator

We will go next to Murray Arenson with Janco Partners.

Murray Arenson - Janco Partners

Yes, good morning. Thank you. Couple of questions for you. We talked about the demand side of the equation and how you are continuing to see strength. But across that breadth of services as the enterprises are making larger decisions. Is there... do you see any timing risks there with any other customers?

James Q. Crowe - President and Chief Executive Officer

Give me a few more words if you would please. I'm not sure I understand.

Murray Arenson - Janco Partners

Well, I'm just trying to understand if you have a customer base it's trying to take a look at different range of services, does that lengthen the decision making time or anything like that could have an impact just in terms of timing of revenues?

James Q. Crowe - President and Chief Executive Officer

If you are asking at the macro level, are we seeing changes in the way people buy? I'd say they are deferring the very large... the enterprise organizations may be deferring new investments in brand new capabilities, but are spending a lot of many improving their existing... becoming more efficient. Financial services vertical is a good example, and Neil your comment here. We don't see as many major network builds. We see lots of grooming, lots of improvement aimed at productivity, trading et cetera. Neil?

Neil Hobbs - Executive Vice President, Operations

Yes, the financial services is a great example though and a whole segment moving towards the kind of products and services that we sell and that we do very well. So, we are seeing more and more of them buying our wavelength services, and then largely, positioning themselves right now for they are looking at the next generation of technology as they move forward, just trying to get efficient they wanted to. So, in the macro level and larger decisions are probably taken longer because they are more important for them, but it continue level of business and with our market share and there we find ourselves better competitive.

James Q. Crowe - President and Chief Executive Officer

Next question? I'm sorry. Next question?

Operator

We will go next to Frank Louthan with Raymond James.

Frank Louthan - Raymond James

Great, thank you. And you said on... you mentioned that the head count 35% or so have been there less than six months. Is that of the business side of the quota-bearing reps. Can you be a bit more specific on that side, and how long it take before they hit full quota and I want to go back to the Internet traffic growth question? Can you give us an idea of what you saw or what you are seeing for Internet traffic growth and which forecast is going forward for the year? Thanks.

Neil Hobbs - Executive Vice President, Operations

I will take the first part of the question. No, 35% is from the total sales force that has been accounting for less than six months. It's different by different market group depending on the maturity of that market group and our ability to... be satisfied with the customer base and the productivity levels from each... for each part of the sales force.

James Q. Crowe - President and Chief Executive Officer

With respect to traffic growth, we've been saying for sometime that we think as we go back to our Analyst Investor Conference two years ago, we said at that time we thought a range of 60% to 80% was reasonable, you could get higher numbers, if you were more aggressive without the option of Internet, or video over the Internet. You would be at the lower-end if took longer to deal with things like digital rights management business model who gets paid by whom, whether it is ad supported or subscriber, et cetera.

We haven't seen any reason to change overall aggregate demand measured in bips [ph]. What we said at the time and we'll repeat over and over again, those bips are expressed at various levels of the network, and it's increasingly difficult to predict how that will play out... it get right back to that question about large companies, choosing perhaps to connect data centers with fiber.

Buying waves for less traffic sites, buying private line for maybe server locations that are less... that are not as large, buying transit to locations where they have lighter traffic loads maybe internationally. Buying CDN for content services. I have said publicly any one of the banks on this hall would be doing the industry a great service, if they took a shot at developing the bips index up and down. All of those services to my knowledge no one adequately does it. We think we are a pretty good representative sample. We think we carry perhaps 20%, it would take of total Internet traffic. So, we are representative sample and we continue to believe that 60% to 80% growth rate in aggregate bips is reasonable.

Frank Louthan - Raymond James

Is that what you experienced in the first half of the year?

James Q. Crowe - President and Chief Executive Officer

I would say on an annualized basis, quarter-to-quarter, but yeah, I don't think there is much... if you measured to aggregate bips up and down all services. Yes I think that will be reasonable. I'd point you to Cisco that's been doing some pretty good work, trying to keep their arms around the same question, they've got an effort going on, and their estimate for this year is comparable to our own. I think it was 65%. They were looking at IP though only. But I think that's a realistic assessment. I will leave it to you to decide whether you think there is movement to long-form high-resolution full-screen video will have a long-term impact, but you could certainly imagine it would.

Frank Louthan - Raymond James

Okay, great. Thank you.

James Q. Crowe - President and Chief Executive Officer

Thank you. Next question?

Operator

We will move next to Thomas Watts with Cowen and Company.

Thomas Watts - Cowen and Company

Good morning.

James Q. Crowe - President and Chief Executive Officer

Yes, Good morning.

Thomas Watts - Cowen and Company

In terms of your CapEx this quarter, is there any change in pattern in terms of extending your metro builds and adding buildings on the network? And then could you also comment just in terms of off-net terminations or you see any changing costs or availability of circuits to do that, is that affecting your ability to bid on contracts?

James Q. Crowe - President and Chief Executive Officer

Yeah. Two comments there. With respect to CapEx, we have said consistently that we're spending capital to turn up the sales that we have. We are not and haven't spent other than in Europe. We haven't spent capital to expand to new metro, or fundamental metro ring expansion meaning whole new sections of town. We continue to add buildings, as we saw in those buildings. And we have said that when Sunit decides we have hit our target credit profile and he said if you want a proxy for that it's three to five times debt-to-EBITDA. Then as we generate cash, we plan to allocate it to expand the network and we are still on track to do that. With respect to that second question, what was that again, the second question?

Thomas Watts - Cowen and Company

Are they in terms of having, as you are bidding for multi-site customer in-house from off net...

James Q. Crowe - President and Chief Executive Officer

Yeah, we target and this isn't an output, it's a goal and it has directly to do with Neil Hobbs comment about sales force, about what we sell, where we sell and to whom we sell it, that is on-net high-margin services to customers who value those services. We target 80% incremental gross margin and that's been pretty consistent.

We haven't varied on that particular goal or the actuals on our incremental actual in quite a long time. That happens because we manage that effort. We have along with many others noted that prices for special access are up, you go to the FCC and see all the brouhaha by net buyers of special access, be it wireless companies, learnt also local phone companies by those for a tower back haul. It's the bread-and-butter of those companies that that tire target enterprises that are going on their own local networks. AT&T and Verizon quite publicly have been raising rates. I think, Qwest CEO in the last earnings call indicated they were following.

We have said publicly, we of course were following also. So, yeah, we are going to some increase in our prices for off net, but we can deal with that in pricing and also net-net, it's a benefit to us since 80%, if you want to think of it that way of our traffics on our own network. I think we have time for two more questions.

Operator

Okay, we will take over next question Chris Larsen with Credit Suisse.

Christopher Larsen - Credit Suisse

Hi, thanks. Just two questions. Last quarter you talked a little bit about the backlog. Can you make some comments on that. And then secondly, Sunit on the balance sheet, how much cash do you feel that you need to keep on the balance sheet when you are paying down debt versus keeping cash on the balance sheet, and are there any other assets to sell i.e., the coal mine and what could we possibly get for that? Thanks.

James Q. Crowe - President and Chief Executive Officer

I'll handle the first one on the backlog. We're pleased with our progress over the last quarter. We have made improvements in the cycle times, that is the time it takes us to deliver an order to a customer and turn out the service. We have made improvements to our standard intervals. So that -- those are short-term and customers don't have to wait as long to get this service.

In addition, we had now 90% meeting the time that we set, our customer for when we'll deliver the service and the backlog sets into two areas and we are really calling a work-in-progress mode within the company. The backyard sets into two areas. The good backlog orders that you are waiting to deliver that you can't deliver within the time to customer wants. On that backlog that is the time is taking you longer than the customer wants. In both cases, our backlog is down and that backlog that is the one what frustrates the customer and is at an all-time low as of last week.

Sunit Patel - Executive, Vice President and Chief Financial Officer

So your next question on the cash side, we expect to be very nicely cash flow positive in the second half of the year. So, our cash position will continue to improve. And once you're cash flow positive and if your leverage goes down... we have always maintained a high liquidity position. I think we will continue to do that. But obviously when you are free cash flow positive, you don't need to maintain as much cash as you might have in the past. And as you have indicated we have got enough cash to handle... that more than enough cash to handle that debt maturity in 2009 and still be left with a comfortable cash position.

So, I think in the past we have indicated as much as $500 million, and so you don't need as much as that when you are free cash flow positive and we believe, we are now at a point where we are sustainably free cash flow positive going forward. So, this is the first time we have been at this point. This quarter's EBITDA was the highest we have ever reported in history and given what Neil just talked about on service delivery and given what we are looking at in terms of sales funnel and sales backlog, we feel really good about the rest of the year is all I would say.

Christopher Larsen - Credit Suisse

Can you... just on the backlog, how was the time from order to delivery now and how is that compared may be to where you were say a year ago prior to the mergers?

James Q. Crowe - President and Chief Executive Officer

Let me think about that in two ways. Delivery of services on net and off net. Off net obviously we meet the market because we buy. So we can't short the interval any more than what the interval is from our underlying provider whoever that happens to be. That's $0.20 of our revenue dollar if you would. The balance, let me be real clear.

Our goal is to get back to where we were before we began acquiring companies which is industry leading. I think our customers, I know our customers would tell you, one of the reasons they purchased from Level 3 was the highest level of service quality delivered on a predictable and industry leading interval. That is a shorter interval than comparable companies.

Today, I would say we are at parity with our large competitors. We are not better than our large competitors. We will get better that's our goal and we planned to do that over the course of the balance of the year.

Christopher Larsen - Credit Suisse

Thank you.

Neil Hobbs - Executive Vice President, Operations

One of the reasons we are confident, we can achieve that goal is that our Unity platform allows us to be very competitive in service delivery for our customers and as that program rolls out, we are confident that we can exceed the industry standard.

James Q. Crowe - President and Chief Executive Officer

I think this is the last question operator.

Operator

We will take our final question from Michael Ross [ph] with Citi Investments [ph].

Unidentified Analyst

Hi, good morning and thanks for taking my questions. Just two questions. You touched on churn a little bit earlier, and I was wondering if you could share with us more of the churn trends that you are seeing across the different customer revenue segments that you break down in the financial release.

And the second question was, do you have a percentage that you could share with us in terms of the amount of revenue that would be... let's call it anti-telco incumbent, the percent of revenue that you get from players that wouldn't want to use the telecom incumbent because they might complete against them in the retail channels like cable and maybe there are some other businesses that you might want to also put into that category? Thanks.

James Q. Crowe - President and Chief Executive Officer

Yeah. Let me... if I understand your question on churn. We refer I think to churn in the sales force. We weren't talking about customer churn, think of it as involuntary turnover terminations or sales force that didn't meet for whatever reason our criteria, which as Neil indicated is a fairly high level of expertise and we want a pretty high level of productivity. Our code is, we would say tend towards the high-end of the industry, and our products set is the one that requires training and that doesn't fit everyone. That's what we are referring to about churn.

With respect to customer churn, taxing out what we would consider a repositioning of customer base from acquired companies to meet what we think is the best customer base... based on our ability to meet their needs. Our churn is low for wholesale, I think 1% a month kind of a number, which has been structural on my experience for 20 years. Content it's too early to be declaring, it's very low for our content base, because we have a unique set of services like Vyvx may be even less than that number I mentioned earlier. Europe, it's low. For enterprise I don't think... I will give you them, because I don't think it's real meaningful right at the moment for the customers that we want, it's low, but we are continuing to reposition and work on the kind of customer base we want.

With respect to your question about what I'll call strategic conflict, we will go through our customer base. For wholesale customers that's cable, wireless providers and foreign telcos are the three big. Cable I think it's pretty obvious [ph] in a pitched battle with our big competitors AT&T and Verizon. I think all things being equal, we have a sales advantage there. Obviously we have to deliver high quality on time and with the right services, but we have a... what we think is bit of a structural advantage for the non-AT&T, Verizon Wireless. We clearly have an advantage and for foreign PTT's who are directly competitive with Fortune 500 managed services for instance, the global multinationals we have an advantage, hence why we are successful over that group.

For our content group, media companies, I am sure most on the call are familiar with all of the issues surrounding net neutrality and the battle between traditional media, new media, search, mega portals and those who own consumer broadband access, simply put, the owners of consumer broadband access would like to help amortize the cost of providing net access by charging the owners of content for the right to use those connections, that helps us.

For our business markets in many ways it's very similar to the dynamic that existed when we started MFS back in 1986, shortly after the break up of AT&T. Fundamentally, business customers want choice, and it's starting to look a lot like it did back in 1985-86, but they had no choice and they wanted one. That's a good sales proposition. It's never sufficient by itself, you still have to have good product, you have to have quality service delivered on time, but it's an advantage. And in Europe we... I don't think that question applies in Europe.

So, with that I would say... as I did last quarter, in many ways the market is exactly the market we build our company for. I am happy to say that our provisioning is no longer an impediment to meeting that kind of market and the demand inherent in that market. The bottlenecks that we internally created are largely behind us. We are adding sales force, we have the right product in the right positions. We think this quarter was a good quarter and we think we can have increasingly better quarters over the course of the year. With that thanks for listening. We look forward to talking with you in three more months. Operator that's the end of the call.

Operator

This concludes today's Level 3 Communications Incorporated second quarter 2008 earnings conference call. Thank you for attending and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Level 3 Communications, Inc. Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts