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Level 3's Woes Not Likely To Douse Cox Data Service

2/17/2002 7:00 PM Eastern

Cox Communications Inc. — which just endured the hassle of taking over cable-modem customers from failing Excite@Home Corp. — might be facing another change in service provider, this time related to its backbone connections.

Level 3 Communications Inc., one of a group of new fiber-optic network operators now facing financial difficulties, holds part of the contract for Cox's backbone connectivity services along with AT&T Corp. But despite reports that the Broomfield, Colo.-based network operator may face trouble with creditors in the coming months, Cox officials said they're confident there is no threat to its cable-modem customers' service.

In a Jan. 29 statement, Level 3 warned that if sales, cancellations and disconnections continued at the current rate, the company might violate a revenue-dependent financial covenant tied to its senior secured credit facility agreement as soon as at the end of the second quarter.

Level 3 has started negotiations with its lenders, but this development adds to the already building tension in the sector.

Network operator Global Crossing Ltd. recently filed for Chapter 11 bankruptcy, and Williams Communications Group Inc. acknowledged that it also faces questions about its line of credit.

But Cox officials maintain confidence that cable-modems won't be left in the dark should Level 3's condition deteriorate, in part because of Cox's backbone architecture. Cox uses Level 3 and AT&T Corp. to provide Internet-protocol ports that link to the Internet and to private-line service connecting the MSO's 11 regional data centers.

The backbone system uses a two-way ring architecture similar to that of a synchronous optical network (SONET) system, so such port connections are duplicated to guard against system failures, according to senior vice president and chief information officer Scott Hatfield, coordinator of Cox's Excite@Home migration.

"We certainly expect that we will continue to grow that vendor base over the next little bit, so the odds that there will be a third are pretty good," said Hatfield. "So it is not an exclusive relationship.

"Should we need to change either of those — AT&T or Level 3 — we would be able to do so, because we own our IP address," he added.

Level 3 was chosen because it was willing to rapidly turn up Cox's connections, and it has done just that. Service has been stable and there is no reason to revisit the contract, Hatfield said.

"The big thing about the backbone is that it has really proven already to be a pretty capable design," he added. "So where we have lost any one circuit — and certainly, with an immature network, you are going to lose a circuit from time to time — the ring design has already been used twice to my knowledge and caused us to not have a customer interruption when just a single line into a market would have."

Level 3 may well be able to negotiate with its creditors and avoid further financial problems. Even if it does head for Chapter 11 or worse, though, customers may see little change, said TeleChoice Inc. chief strategist Russ McGuire.

Consumers have been disrupted by notable broadband flameouts, including the one involving Excite@Home. But failures involving next-generation networks — most notably those of 360networks Inc. and Enron Corp.'s darkened broadband division — have not interrupted consumer services.

"Fiber networks area easy for someone to pick up and operate," said McGuire. "Often, in most of the major cities, everybody is in the same buildings already.

"Whether it is a WorldCom [Inc.], or whether it is a Qwest [Communications International Inc.] or whether it is a Williams or whoever would pick up those assets, it would be an easy transition,"he continued. And even in the worst case, if the network were to shut down, it is a relatively easy transition from one provider to another."

Long-term, the newer-generation networks face some hard economic realities.

"The fundamental issue for this segment of the industry is that you had four or five new companies all competing for that share that could be taken from the traditional fiber networks," McGuire said. "And there is not enough to go around.

"So when you get down to where there is one or when there is two, then maybe there is enough there so that they can get enough traffic and have a viable position."

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