McLeodUSA, a competitive local phone company, and XO Communications, created by the merger of Nextlink Communications and Concentric Network, have agreed to buy capacity on "dark fiber," or unactivated, fiber-optic lines.
In addition, XO and McLeodUSA will purchase co-location and network management services from Level 3. To house their co-location services, the companies will rent space in one of Level 3's secure data center facilities to house their communications and Internet equipment.
Both deals are valued around $200 million each, with about half the sales representing services. A third $325 million contract with an undisclosed customer also has been signed, according to Level 3 representatives.
The new contracts for Level 3 come amid a spending downturn in the overall communications sector. As capital investment markets wither and telecom stocks slip, analysts, investors and even some executives are questioning whether the communications market slump will continue unabated.
But Level 3 has a strong balance sheet and new contracts like those with McLeodUSA and XO, which could reassure investors that the demand for bandwidth remains strong.
The deals, which typically span 15 to 20 years, provide Level 3 with long-term guaranteed revenue at a time when many carriers are strapped for cash. Level 3, which holds about $5 billion in the bank, has sold more than $2 billion in dark fiber and related services this year, the company said.
The company, a growing fiber-optic-based carrier, is building a state-of-the-art, 16,000-mile U.S. network and international networks. Level 3 is developing a high-capacity network with additional underground conduits so it can upgrade its systems more easily in the future. The company sells bandwidth to retail communications carriers on a wholesale basis.
An existing Level 3 customer, McLeodUSA plans to purchase additional network capacity in North America. XO will buy bandwidth and spare conduits in Europe and on Level 3's transatlantic cable.