Level 3 cautiously optimistic on LatAm amid economic woes

IP communications provider Level 3 posted a 6% year-on-year increase in revenues in Latin America in 2Q15 despite economic uncertainty, the strong dollar, and a "worsening" situation in Venezuela.

Globally, the company saw a US$13mn loss in the quarter compared to a US$45mn profit in 2Q14, which included a US$163mn loss on modification of debt charges. Revenue rose marginally to US$2.06bn from US$2.03bn.

Speaking during a conference call with investors, Level 3's CFO Sunit Patel said that the company's core network services (CNS) revenue in Latin America, which represented US$146mn of the total US$186mn in the quarter had risen 5.7% year-on-year in constant currency and declined 7% on an as reported basis.

The company has projected 8.5% growth in CNS revenue in 2015, similar to 2014. Patel said that performance in the first half has been softer than was expected, but that things are expected to pick up in the second half of the year and maybe end 1% below original growth expectations.

CEO Jeff Storey said that the company sees "continued pressure" from the economic and political environment in the region.

However, "we're still growing the business and I believe we're well positioned to achieve stronger growth when the regional economic conditions improve."

Patel said that the macroenvironment in Venezuela has "continued to worsen" and that the company is monitoring the situation closely. Venezuela has an alternative exchange rate called Sicad 1, weaker than Venezuela's official rate, which Level 3 uses for most of its transactions.

The telecoms sector could be impacted by alternative exchange rates as it is highly dependent on foreign imports of handsets and network infrastructure, and the development of mobile broadband in Venezuela has suffered as telcos struggle to obtain sufficient foreign currency for their needs.

M&A AND INVESTMENT

Asked about M&A potential, Storey said that Level 3 is an "acquisitive company" referring to the recent acquisition of Black Lotus, adding "we believe in Europe and Latin America, we want to continue to grow scale."

The executive said that data centers are the fundamental element of Level 3's strategy, saying the company will continue "investing organically to drive our scale, to drive better network facilities, better network utilization. And then we will look at inorganic activities."

Storey added that Level 3 has completed its rollout of a new Ethernet platform in North America and plans to complete the rollout in EMEA by year-end and in 2016 in Latin America.