Level 3 Communications (NYSE: LVLT) is a provider of a range of integrated communications services including network and Internet services, colocation service, media services and voice services. Its operations are divided into communications and coal mining. Its largest segment, communications, consists of Core Network Services, Wholesale Voice Services, and Other Communications Services. Its operations are primarily located in North America and Europe. As the demand for online video, gaming, and the streaming of movies and live events continues to rise, providers of these services are striking long-term contracts to IP Upstream carriers. Reaching deals with streaming companies has been critical to Level 3’s revenue growth. 
Level 3 reported a loss of $622 on $3.65 billion in 2010 revenues, compared to a loss of $618 million on $3.76 billion in revenues in 2009. The declines in profitability and revenues can be partially attributed to a decline sales from large companies. In addition, expenses have risen as a result of high interest costs associated with the company’s debt load. However, contracts with companies providing streaming services has the potential of providing new sources of revenue growth.
Increases in consumer demand for online video, online gaming, streaming full-length movies and lives events has the potential of providing significant growth opportunities for communication services providers. In 2010, Americans spent as much time online as they did watching TV, and Level 3 expects that the amount of time spent streaming online to increase. Level 3’s broadcast services network and Vyvx capabilities delivered approximately 15,000 video feeds month as well as major live events like the Super Bowl, which the network has delivered for the past 22 years. In 2010, Level 3 Communications’ IP Upstream service was selected to be a primary content delivery network (CDN) for Netflix's fast-growing streaming service. However, this rapid growth is not without its costs. Level 3 says it will double its storage capacity to help accommodate the new contract. Expanding its services has the potential of forcing the company to increases its debt load, which would lead to significantly higher costs.
In an effort to control or reduce costs, many of Level 3’s customers have deferred or foregone purchases of services. In addition, customers have also had trouble making periodic payments. As a result, there has been a decline in demand for communication services, which has resulted in lower revenues for Level 3. Meanwhile, utility costs have remained relatively stable for communication companies, leading to tighter margins. However, as the result of a gradual pick up in economic activity, Level 3’s profit margins on the Core Network Services have improved. Increased economic activity has the potential of leading to increased revenues and profits on Level 3’s core operations.
While rising demand for IP Upstream services provides a new growth opportunity, a slow economic recovery has led to decline in demand for many other services provided by diversified communication companies. In addition, competition for fewer contacts for many networking services has led to depressed margins.
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