.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

H.O., Boca Raton, Fla.

Dear H.O.:

Level 3 Communications Inc. (LVLT-$4.94) sells millions of dollars worth of anthracite coal to various electric utilities on long-term supply contracts. In fact, LVLT had been selling coal for well over 100 years (since 1887) when in 1998, the company’s CEO, James “Big Jimmy” Crowe began to build the world’s largest and most sophisticated fiber-optic network with some $3 billion he raised from investors.

Those were the halcyon days, when tech stocks routinely orbited Pluto, rose in value faster than the speed of light and defied gravity, and instant billionaires (who were a dime a dozen) drove up the value of good coke to $250,000 a kilo. By early 1999, Big Jimmy had 250 crews burying fiber optics in 20 time zones at a pace of 20 miles a day. And by the first quarter of 2000, LVLT was trading at $130 a share, giving birth to another 23 billionaires who thought “these days would never end.”

But the spigots were wide open, the money wouldn’t stop flowing and 60 more companies decided to build and install fiber-optic cable. By the second quarter of 2000, it became apparent that LVLT was attracting more competitors than customers. A year later, the stock was trading at $2 a share, the tech bubble collapsed, billionaires returned their leased Bentleys, the price of pure coke crashed to $30,000 a kilo, tech stocks imploded and average investors lost huge amounts of money. During the following three years, more than 650 telecom companies with combined assets of nearly $1 trillion filed for bankruptcy. It was like a collapsing house of cards … no, make that myriad decks of houses of cards, and the wipeout was breathtaking. But by 2004 the recovery was under way and got a huge push via the $41 billion merger between AT&T Wireless and Cingular.

Big Jimmy is still LVLT’s CEO and in the past three years has very neatly engineered 10 complementary acquisitions worth about $4.5 billion, thanks to a strong junk bond market. So between 2001 and 2006, LVLT’s revenues grew from $791 million to $3.6 billion, and the stock rose like a phoenix from $3.50 a share last year to $6 so far in 2007. High debt levels are keeping LVLT in the red. However, Big Jimmy believes his company will be cash-flow positive by the end of this year.

At least 50 percent of LVLT’s network traffic now derives from online Web video. Online Web video and the rebirth of telecom happened almost simultaneously. Note the number of new cell phones that have video capability. Anyhow, a typical video consumes 1,100 times as much bandwidth as a sound file; that’s beyond enormous. And high-definition video consumes 10 times as much bandwidth as normal video … and that’s a lot of bandwidth. There was no video way back in 2000, but today more than 35 percent of all Internet traffic is video-based. Because of sites like YouTube, global traffic is growing at a rate of 25 percent a year, and LVLT is right in the thick of this bandwidth explosion but participating with a lot more sense today than it did six years ago. Bandwidth use is soaring, bandwidth prices are stabilizing, bandwidth profits are at record levels and bandwidth spending will exceed $110 billion this year.

I’d be a speculative buyer of LVLT because of its prominence in the industry. Its network is based on the latest technology, and it can easily adapt as newer technologies come on line. This will certainly keep operating costs low over the coming years. The company generated enormous value acquiring WilTel and Broadwing and substituting the LVLT networks. The LVLT network is also attracting business from several regional Bells and several ISPs such as Microsoft, AOL and Comcast as well as France Telecom and British Telecom. Impressive, that! LVLT won’t be profitable until 2009, but I’d buy the stock today with an 18-month target price of $9 to $11.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.