Level 3 Reports Second Quarter 2007 Results

Level 3 Reports Second Quarter 2007 Results

Expected 2007 Integration Synergies on TrackStrong Sales During the QuarterFinancial and Business Highlights- Consolidated Revenue of $1.052 billion- Net Loss of $202 million, or $0.13 per share- Consolidated Adjusted EBITDA of $193 million- Completed acquisition of Servecast Limited, a provider of live and on- demand video management and streaming services in July 2007

Level 3 Communications, Inc. reported consolidated revenue of $1.052 billion for the second quarter 2007, compared to consolidated revenue of $1.056 billion for the first quarter 2007.

The net loss for the second quarter 2007 was $202 million, or $0.13 per share, compared to a net loss of $647 million, or $0.44 per share, for the previous quarter. Included in the net loss for the first quarter 2007 was a $427 million loss or $0.29 per share on the extinguishment or refinancing of long-term debt.

“While we have a great deal of work remaining, we made good progress on our overall integration of acquired companies,” said James Q. Crowe, CEO of Level 3. “We are pleased with the continued positive operating environment in terms of demand and importantly, our efforts from integration and continued cost savings resulted in improved profitability and growth in Consolidated Adjusted EBITDA.”

Consolidated Adjusted EBITDA(1) was $193 million in the second quarter 2007, compared to $170 million for the first quarter 2007.

Core Communications Services

Core Communications Services revenue increased quarter over quarter by 2 percent. The increase was due primarily to the growth in long-haul transport services and Vyvx broadcast services. IP and Data revenue declined primarily as a result of the implementation of new prices under a contract renewal by the company’s largest high-speed IP customer.

Core Communications Services revenue increased in the Business Markets Group, Content Markets Group and European Markets Group, as a result of continued customer demand. The Wholesale Markets Group had lower than expected Core Communications Services revenue primarily due to longer than expected service activation times and lower than expected wholesale voice revenues.

In the second quarter 2007, the percent of Core Communications Services revenue by each market group was as follows:

– Wholesale Markets Group – 56 percent
– Business Markets Group – 27 percent
– Content Markets Group – 10 percent
– European Markets Group – 7 percent

Other Communications Services

Other Communications Services revenue declined by 15 percent to $71 million during the quarter, primarily as a result of expected declines in managed modem services.

SBC Contract Services

SBC Contract Services revenue declined by 8 percent to $76 million quarter over quarter.

Deferred Revenue

The communications deferred revenue balance increased to $943 million at the end of the second quarter 2007, compared to $939 million at the end of the first quarter 2007 as a result of indefeasible right of use (IRU) sales during the quarter.

Cost of Revenue

Communications cost of revenue for the second quarter 2007 decreased to $437 million, versus $450 million in the previous quarter. Cost of revenue decreased during the quarter primarily due to the benefit of ongoing optimization and integration efforts.

Communications Gross Margin(1) was 58 percent for the second quarter 2007, versus 57 percent for the first quarter 2007. The increase in communications gross margin is primarily attributable to lower third-party facilities expenses resulting from completed integration activities to date.