3 Since May 2000, 161 companies in North America telecommunications have filed for bankruptcy, or exited operations (vs. only 38 in the previous 15 years) U.S. Bankruptcy, Page 1 of 5 *Bold denotes direct Level 3 competitor Sources: Bankruptcydata.com; f**kedcompany.com; convergedigest.com; phoneplusmag.com; Merril Lynch
4 U.S. Bankruptcy, Page 2 of 5 …and so on… *Bold denotes direct Level 3 competitor Sources: Bankruptcydata.com; f**kedcompany.com; convergedigest.com; phoneplusmag.com; Merril Lynch
5 U.S. Bankruptcy, Page 3 of 5 …and so on… *Bold denotes direct Level 3 competitor Sources: Bankruptcydata.com; f**kedcompany.com; convergedigest.com; phoneplusmag.com; Merril Lynch
6 U.S. Bankruptcy, Page 4 of 5 The list includes 22 of Level 3’s direct competitors such as 360 Networks, Global Crossing, Williams, MFN, Velocita, XO, Teleglobe & Worldcom *Bold denotes direct Level 3 competitor Sources: Bankruptcydata.com; f**kedcompany.com; convergedigest.com; phoneplusmag.com; Merril Lynch
7 U.S. Bankruptcy, Page 5 of 5 The list also includes Genuity, which was purchased in a pre-packaged Chapter 11 bankruptcy by Level 3 *Bold denotes direct Level 3 competitor Sources: Bankruptcydata.com; f**kedcompany.com; convergedigest.com; phoneplusmag.com; Merril Lynch
8 IaxisPan-EuroPublicEarly 2001Bought by Dynegy ViatelPan-EuroPublicQ2 2001Re-emerging PangeaNordic LDPrivateQ3 2001Chap 11 - For sale GTS/Ebone (bought by KPNQ)Pan-EuroPublicQ4 2001Bought by KPNQ Carrier 1Pan-EuroPublicQ1 2002Partially liquidated StormPan-EuroPrivateQ1 2002Bought by Wavecrest WorldPortUK ColoPrivateQ1 2002Shut down operations Flag TelecomWorldWidePublicQ2 2002Chap 11 TeleglobeWorldWidePublicQ2 2002Chap 11 MFNWordWidePublicQ2 2002Chap 11 NTLPan-EuroPrivateQ2 2002Chap 11 KPNQwestPan-EuroPublicQ2 2002Chap 7 VersatelBeneluxPublicQ2 2002Chap 11 JazztelSpainPublicQ2 2002Recapitalization UPCBenelux & Nordics Cable & ISPPublic9/30/2002Chap 11 The following are likely to go bankrupt/refinance/sell out shortly: Energis (UK part is sound)UK and some Pan-EuroPublic CompletelFrancePublic TelewestUK cablePublic LambdanetGermany and some Pan-EuroPrivate eViaItalyPrivate Fifteen carriers operating in Europe have either ceased operations or been acquired due to financial distress. Several others may follow Europe Bankruptcy OwnershipQuarterFiling Company Telecom Sector TypeFiledType *Bold denotes direct Level 3 competitor Sources: Bankruptcydata.com; f**kedcompany.com; convergedigest.com; phoneplusmag.com; Merril Lynch
9 Why Do Companies File For Bankruptcy Protection? Not because of a low stock price Not because the bonds trade below par Not because they have Sell ratings by Wall Street analysts Not because they are the subject of negative articles in the press Simply, they run out of money to fund their business or they violate debt covenants
10 Almost $100 Billion of debt is being restructured by just the top 15 bankruptcies. Little of this debt will be repaid to the creditors. Bondholders are likely to get some compensation, although this may be very paltry in comparison to the sums invested Debt of Bankrupt Companies Total Debt by Company Filing Chapter 11 (In Millions of U.S. Dollars) CompanyMarket Total Debt 360networksWholesale Carrier3,000 Flag TelecomWholesale Carrier2,600 Global CrossingWholesale Carrier12,400 GlobixHosting Provider*600 MFNU.S./European Services675 NTLCable Operator*17,000 PSINetHosting Provider4,300 TeleglobeGlobal Telecom Operator2,700 VersatelDutch Carrier1,600 VelocitaU.S. Telecom Service827 ViatelWholesale Carrier2,100 WilliamsWholesale Carrier6,000 WorldComGlobal Telecom Operator41,000 XO CommunicationsU.S. Telecom Provider1,000 Total Debt95,802 Source: Probe Research, Inc., Company filings
11 Some companies have been liquidated or purchased, and will not re-emerge Companies That Have been Liquidated KPN/QwestLiquidated. Assets purchased by various carriers NorthpointLiquidated. Operation now consists of a lawsuit against Verizon Rhythms Net ConnectionsAssets Purchase by WorldCom WinstarAssets Purchased by IDT IaxisAssets Purchased by Dynagy VelocitaAssets Purchased by AT&T for $37 million on November ($35 million in AT&T Stock, $2 million in cash) for $483 million of book value assets. EPIK Communications Assets Parent company Florida East Coast Industries announced in November that EPIK would exit the telecom business. EPIK’s network reached 12 cities in the Southeastern US including Atlanta, Jacksonville, Orlando, Tampa, and Miami. Q1'02-Q3'02 revenue = $15 M GenuityAssets and operations purchased by Level 3
12 Several competitors have recently announced that they are closing their colocation and hosting facilities Colocation Closures Exodus is closing its facility at 111 8th St in New York and is rumored to be closing additional sites Qwest is closing 8 of its 16 Cyber Centers – Closing: Atlanta; Boston; Columbus, OH; Miami; Seattle; San Jose; Yonkers, NY and close one (out of two) in Sterling, VA – Keeping: Burbank, Calif.; Chicago; Denver; Newark; Tampa; Sacramento; Sterling, VA & Sunnyvale, Calif Inflow is closing 5 of its data centers MFN will be closing 14 of its 22 data centers (and has filed for bankruptcy) Genuity has marked 23 facilities for closure (and is facing bankruptcy by the end of the month) Global Crossing will be closing some of their network facilities as stated in their recent bankruptcy reorganization plan Broadwing closed 11 of its 14 facilities last year Digex, announced November 11, 2002 that it has formed a Special Committee to explore strategic alternatives, including a possible sale of the company C&W's is closing down 12 U.S. data centers (from 27 to 15). 8 of these are in cities where they have multiple facilities (NY, Bay Area, DC) and they can consolidate customers into a single facility. The other 4 data centers will likely be Miami (confirmed), and potentially Dallas, Austin and Atlanta. It will also reduce European datacenters from 5 to 2. Worldcom announced facility consolidation in Feb 03, reducing total square footage by 8.7 million sq. ft. -- a 26 percent reduction. The company will maintain major presence in Alpharetta, Ashburn; Cary, NC; Clinton, Miss.; Denver, Colorado Springs.; Hong Kong; Reading, UK; Richardson, Tex.; and Tulsa only. In December 2002, it put four of its IDCs up for sale (Atlanta, St. Louis, Somerset, and Richardson).
14 A Few Facts Worth Considering… The world spent $912 Billion on telecommunications services in 2002 There are less viable, competitors today then a few years ago – It’s unlikely that the capital markets will support new companies IP has won the protocols wars…for now – IP is a general purpose network connecting general purpose machines Circuit switching works for voice…and not much else – Circuit switching is a special purpose network connecting special purpose machines Many network service providers operate many different networks simultaneously Commercial viability of service providers is a key differentiator Customers are looking for stable, reliable business partners
15 A few questions to ask? Have you filed for bankruptcy? Do you have the same management team? Are you being investigated by any three letter government agencies? Do you have cash? Have you restated your financials? Who are your customers?
16 Changing Perceptions in the Market 1998 - 1999 – Next Generation Broadband Network with exploding demand – Can’t do anything wrong 2000 – 2001 – Struggling & debt – laden in an industry with a glut of capacity – Can’t do anything right 2002 – An industry survivor – The company Warren Buffett is backing 2003 – Stable, reliable business partner – Achieving key financial milestones Our financial performance depends on our ability to execute!