“If you?re in a pretty strong telecom market position, you?re in a
difficult situation,” says Kevin O?Hara, the intensely alert, 38-year-old COO of red-hot Level 3 Communications (www.level3.com).
O?Hara?s words may seem to fly in the face of conventional business wisdom. Like Elvis, however, conventional wisdom has left the building. The telecom business, O?Hara explains, is undergoing a seismic shift, one that?s the linchpin of Level 3?s fever-dream pace.
We?re in the midst of a real interesting paradigm shift, at least it?s interesting,
O?Hara says with a smile and a raised palm, if you?re the new entrant.
“It?s disconcerting if you?re a traditional telecom provider who?s done a great job. The fact that they?ve donea great job is what makes their transition so hard,” O?Hara continues. “Their strengths have become weaknesses. And we?re just at the front end of a rough period of absolutely disruptive change.
And O?Hara, who?s sitting in a sun-drenched conference room in Level 3?s temporary
headquarters in Louisville, Colo., is uncommonly conversant with disruptive change.
Only founded in 1997, Level 3 has unleashed a tsunami of subversive changes that are
shaking telecom to its underground roots.
Level 3?s upsurge is rapidly taking form, most conspicuously a few miles away in Broomfield, Colo. With the Rocky Mountains as an imposing backdrop, the telecom supernova?s new 800,000-sq.-ft. (72,000-sq. m.) headquarters is rising on a 46-acre (18.4-ha.) site in Interlocken (www.interlocken.com), a high-end, high-tech business park. A mini-army of 800 workers swarms over the site, where Level 3?s four-facility complex will house 3,000-4,000 employees by mid-2000.
Two years ago, this outfit had only a handful of employees, housed in a small corner of a nondescript 15-story office building in Omaha, Neb. That?s disruptive change.
Subterranean Networking
The Colorado headquarters, though, is only one part of Level 3?s
new-era empire building.
In fact, Level 3?s most lethal weapon is subterranean: the 23,000-mile (36,800-km.)
global telecom network it?s constructing on three continents, the world?s first designed
end-to-end for the Internet Protocol (IP) technology that?s propelling the economy by the
nape of the neck. Moreover, Level 3 intends to build its network in only five years. MCI
spent 15 years building its 25,000-mile (40,000-km.) network.
And that?s the centerpiece of Level 3?s practically seamless business plan. Creating
its network from scratch, it?s using cutting-edge technologies like packet-switching,
which provide informational capacity eons beyond previous iterations. That?s made the
sunken cost problem a recurring phrase inside many sweaty-palmed telcos. Consider
AT&T, which has invested US$24 billion-plus in its network during its 114-year history.
Now, such older networks face a fast freight to obsolesce with Level 3?s brand-new
network, which will cost between $8 billion and $10 billion.
Much of the old guard is gamely scrambling. AT&T, MCI-WorldCom and the regional
Bells (among others) are spending billions to install packet-switching capacity. But no
telco CEO has been brave and/or crazy enough to suggest digging up the whole
copper-wire works to install a network equaling Level 3?s. That would eat up two years,
not to mention shareholder relations. “You?d have a shareholders? rebellion,” says New
Japan Securities telecom analyst Edmund Mullane.
Meanwhile, Level 3?s building burners are on full blast. Already, it?s built 1.25 million
sq. ft. (112,500 sq. m.) of technical space, more than any other telecom firm. Yet Level
3 anticipates tech space doubling by yearend 1999.
Above right: “We’re trying to emulate the benefits of a Silicon Valley, but make it a little bit easier for people to increase their quality of life in terms of traffic and the kind of house they can get,” says Kevin O’Hara, Level 3’s 38-year old COO.
This is clearly a building blitzkrieg of staggering dimensions. In 1999 alone, Level 3?s
capital expenditures are projected at a jaw-dropping US$2 billion-plus.
Prime Sites in Cyberspace
So what?s driving Level 3?s out-of-the-blue building bonanza?
Cold hard cash, for one thing. The market has Cheshire-Cat smiled with its wallet,
injecting some $6.5 billion into Level 3 before a single packet-switched strand was laid.
That market munificence has allowed Level 3, unlike many rivals, to pre-fund
construction projects, guaranteeing completion.
More precisely, Level 3?s blistering building pace rests in the breathtaking rise of
“dot-com” as a choice business location, as underscored by two separate reports
released in June by the University of Texas and the U.S. Commerce Dept. Collectively,
those studies depict a wildly bullish Internet economy: one growing annually by 174.5
percent during 1995-98, accounting for over a third of real U.S. economic growth, in
1998 alone generating $300 billion in revenues and accounting for 1.2 million jobs. That
rivals the size of the U.S. auto industry.
Michael Putnam, a Forrester Research e-commerce analyst, says the rise of Net
commerce “rivals the coming of the Industrial Revolution.”
But Net business benefits transcend commerce. Cyberspace has become a critical
workplace component, contends Massachusetts Institute of Technology senior lecturer
Michael Joroff.
“The workplace of the future will not be bricks-and-mortar, and it won?t be
cyberspace,” Joroff says. “It will be a mix of the two, intermingled. The fact is, we have
to work and be in both places.” Already, he adds, far-flung cyber-teams “are
adding value electronically.”
In short, the five short years since the World Wide Web?s debut have made the
Internet a big, big business with unlimited horizons. And that dovetails swimmingly with
Level 3?s groundbreaking, continuously upgradable IP network. “Seventy percent
of overall network installation cost is laying the cable,” O?Hara explains. So our
philosophy is, let?s fill it up.
Building for Uber-Broadband
Are they ever. Initially, Level 3 installed five to seven underground conduits, intending to use only one in the network?s initial stages; extras will be utilized later to accommodate bulked-
up technology.
“But the number of conduits changes all the time,” O?Hara chuckles. Indeed, Level 3
soon upped its network conduits to eight; now it?s installing 10 to 12, depending on
anticipated volume.
That?s spade-flush-scale dug-in capacity. One of Level 3?s conduits can
transmit 60 trillion information bits a second. That?s the informational equivalent
of 750 million concurrent telephone calls, 15 times-plus the capacity of New
York, the planet?s most-wired city.
Level 3?s mind-boggling building blueprint obviously embraces “Moore’s Law.” Intel
cofounder Gordon Moore?s 1965 “law” correctly predicted an ongoing, dramatic decline
in transistors? size and cost for the same amount of computing power.
Level 3 CEO Jim Crowe had his own Moore-like cost epiphany in 1995. Glancing
through a telecom industry newsletter, Crowe spied a chart comparing costs for sending
a 42-page document from New York to Tokyo. Faxing it through AT&T cost $28.83; e-
mailing it via the Net cost a mere 9.5 cents.
Similar economics, Level 3 feels, will draw coveted big-ticket business users. Its
technological edge will facilitate undercutting older telcos by 15 to 20 percent, Crowe
predicts. Says Communications Network Architects President Frank Dzubeck, “Level 3?s
pricing differential is so huge that other carriers must respond.”
“With price elasticity,” O?Hara says, “we anticipate demand continuing to grow as far
as the eye can see” — a future for which Level 3?s network is custom-tailored.
Keeping Infrastructure in Synch
Growth this fast and vast is the stuff of business dreams. But
keeping internal infrastructure in synch presents challenges that are both formidable
and potentially fatal.
Level 3, though, seems that rare company that sprang to life with a full-blown
appreciation of the critical nature of workplace strategies. Few firms so clearly anticipate
the fierce work-space struggles they?ll face if the business plan clicks. Not for nothing
was Director of Real Estate and Facilities Pat Lynch Level 3?s 100th hire.
Lynch?s early-on hire also reflects Level 3?s homage to human capital — a knowledge
nugget embedded in the corporate genetic code practically as it was being written.
Above: “We wanted the headquarters to communicate a non-bureaucratic, flat organization,” with all the staff occupying same size offices, says Director of Real Estate and Facilities Pat Lynch.
“Yes, you might say we?re holding four aces, but with a couple of wild cards out
there,? O?Hara says. “Our biggest risk is execution, doing what we intend
when we intend. Growing so fast, the risk is that we hit a speed bump. We?ve
built a team with a strong execution track record, and we?re confident we?ll continue
executing successfully.
“But if you really boil it down, the No. 1 risk in executing is whether we?re going to
continue to attract and retain the best people,” he adds Our sector?s
unemployment rate is zero. It?s just huge to make sure that we continue
presenting the personnel opportunities, environment, culture and compensation to
attract people. We spend a lot of time on that area.”
Heading for the Rockies
There was precious little time, though, to implement Level 3?s
withering hiring blitz, which took off like some fast-forward streaming video.
It began in Chicago, where O?Hara was CEO of MFS Global Network Services.
When Crowe founded Level 3 in 1997, O?Hara signed on and immediately started
signing others.
“All Level 3?s initial hiring took place in Chicago, a pretty good place to start talent-
wise,? O?Hara recollects. “We signed on about 100 people, all knowing that they were
going to move, none knowing where.”
Human capital issues were in the driver?s seat for Level 3?s Omaha-to-Broomfield
headquarters hegira.
Initially, the site selection search spanned the usual U.S. high-tech suspects: Silicon
Valley, Boston?s Route 128 and Northern Virginia. Then the Denver metro ranked as the
No. 1 most desirable location in Level 3?s survey of young high-tech workers and
college seniors who fit the educational, career and demographic profile. With that, Level
3 began creating its Rocky Mountain Silicon.
“The No. 1 thing the potential employees? survey told us is that the type of people
we?re trying to recruit find a certain location profile attractive,” O?Hara says. “In Silicon
Valley, congestion and housing costs were two huge disadvantages — paying $1 million
for a 1,500-sq.-ft. (135-sq.-m.) bungalow or buying a 2,000-sq.-ft. (180-sq.-m.) house
and sitting in traffic for a hour and a half.
“So I said, ?How do we emulate a Silicon Valley?s benefits — the enthusiasm, the
excitement, the optional programs — but make it a little bit easier for people to increase
their quality of life in terms of traffic and the kind of house they can get?”
Moving Mile-High North
On Jan. 28, 1998, Level 3 announced it was heading to Denver.
Ultimately, the headquarters steered north of the city, owing to cultural considerations
and the availability of a large site in Interlocken, also home to Sun Microsystems? $250
million engineering center.
“Telecom companies south of Denver are primarily cable and traditional telephone
companies,? O?Hara says. “Up north are companies with more computer-centric cultures
like ours. That became a pretty big determinant.”
The Broomfield site also offered, only nine miles (14 km.) away, the fetching burgh
of Boulder, the scenic home of the University of Colorado (UC). The proximity of
Boulder and UC were major concerns, given Level 3?s very young work force, says
O?Hara. Most employees live between Broomfield and Boulder, he adds.
Enter the Anti-?Dilbert?
Level 3 then further muscled up employee drawing power.
First, it offered employees something truly radical: privacy. Increasingly, corporate
America stacks clusters of cubicles atop each other, as if reviving the faceless
workplace that Kafka nightmarishly depicted in The Trial. Level 3, though, is
distinguishing itself as high tech?s antiDilbert. Excepting the customer care group, all
headquarters employees have enclosed, 9-ft.-by-9-ft. (2.7-m.-by-2.7-m.) work areas.
And that means everyone, from CEO Crowe down to the hip-hop dude who
graduated last week.
“We wanted the offices to communicate a non-bureaucratic, flat organization,” says
real estate head Lynch. “We?ve used office mockups in recruiting, and some of our folks
say they?ve been a great tool.”
Level 3 employees can also personalize their space. Says Lynch, “80 percent of an
office?s cost is standard, and 20 percent is employee-specified,” picked from a preset
menu that includes options like an extra guest chair or a kidney table.
In addition, the campus complex has a 6,000-sq.-ft. (540-sq.-m.) fitness center and
volleyball and basketball courts, part of what O?Hara calls market-smart benefits
geared to the demographics we?re trying to attract and retain.
Adds Lynch, “We wanted to spend the money on headquarters areas everyone
could enjoy, not just the chosen few.”
Wide-Open Work Spaces
Cognizant of collaborative work?s critical nature, Level 3 extended its
egalitarian ethic with an inordinate amount of open space, which seems to pop up at
every headquarters? turn, ranging from conference rooms to informal gathering spots, all
equipped with ever-present white boards.
Further accentuating collaboration, only conference rooms have windows. Top
executives are positioned in windowless space at the core.
“And we have no assigned parking,” adds Lynch, 34. “In some places, top
executives own plum parking spots.”
Even with its amenities? emphasis, the complex remains highly flexible. All office
walls, for example, are movable panels. “All our buildings could be reconfigured
overnight,? Lynch says. “There?s a little more up-front cost that way, but given our
dynamics, I?m certain we?ve already paid for it.”
20,000 Resumes Backlogged
That pro-employee bias has paid off grandly. Level 3 has a backlog
of 20,000 “qualified resumes,” says O?Hara; 500 more roll in weekly.
“Fortunately, we?ve been viewed as a hot company, which helps an awful lot in this
marketplace,? O?Hara says. “And we?ve found that our location and entrepreneurial
environment are highly attractive to people from both coasts and Texas, where a lot of
telecom and Internet people come from.
“A lot of industry people have also really embraced our business plan. Another big
issue is our compensation program. Every employee gets stock options.”
Construction Crew Stock Options
Level 3 has added a novel stock option spin: The crews building its
IP network and headquarters are stockholders.
Those crews are part of subsidiary Level 3?s parent: 114-year-old Omaha-based
Peter Kiewit Sons, which first made millions the old-fashioned way: in mining and
construction. In 1989, Kiewit began making billions, bankrolling Level 3 CEO Jim
Crowe?s idea to create MFS Communications. After becoming the biggest of the
“alternate access carriers,” MFS was sold in 1996 to WorldCom for a whopping $14.3
billion.
“There?s actually no technical corporate relationship between us and Kiewit,”
O?Hara explains. “But Kiewit employees own the lion?s share of Level 3?s earned shares;
most of them working on our network are very large shareholders. That?s a huge plus.
They don?t have a perverse incentive to try to make more.”
Kiewit?s network crew also works on an “award fee contract,” O?Hara says. “They get
the maximum fee by bringing the project in at the lowest cost and on the fastest
schedule. Clearly, that also benefits us.”
Network construction is well ahead of schedule, with 8,100 miles (12,960 km.)
completed or under construction at first-quarter 1999?s end, doubling projections. “As
long as we can keep the plow in the ground and moving, network construction is in
great shape,? O?Hara says.
Kiewit?s headquarters crew has a more traditional design/build contract. But its
stockholder status perhaps accounts for the June move-in at Level 3?s first
headquarters facility, a month ahead of schedule.
London Calling
Level 3?s international profile is also rising rapidly, particularly in
London, where it?s already filled its five-story European headquarters. “As we speak,
we?re negotiating for a second, 200,000-sq.-ft. (18,000-sq.-m.) London facility that will
become our European headquarters and provide additional technical space,” O?Hara
says.
Level 3?s European search came down to Amsterdam, Brussels or London. London
had the edge in worker quality and cultural fit.
“The UK has long been Europe?s most deregulated, competitive telecom
environment,? O?Hara explains. “Otherwise, there?s not a long history of competition.
You tend to be recruiting primarily from people from the PTTs (government-run utilities),
who tend to have a very different business approach and culture from what we?re trying
to establish.
“Those environments are okay if that?s who you?re competing against, but not for
headquarters to enter other markets, when you need to set up in the most dynamic
environment.?
?Embracing Uncertain Change?
With Level 3?s almost surreal growth, however, come lingering
concerns over issues that could send things south fast.
Lynch, for example, says, that “we?re just getting our arms around” some of the
company?s rapid-fire real estate challenges. Management took a big step in June,
expanding Lynch?s corporate space bailiwick to encompass the huge tech space
portfolio, which is doing a thriving business in client network co-location and
maintenance. Level 3?s sheer growth volume, however, dictated maintaining global real
estate as a separate unit.
Other potential dangers are obvious: personnel and construction snafus and tapped-
out capital markets. And Level 3, which has lived by the techno-sword, could also die by
the techno-sword. By 2003, for example, Teledesic and Motorola?s Celestri system
should be offering high-bandwidth IP networks utilizing satellites, not wires.
Such possible futures, however, are a primary focus at Level 3, which spends tons
of time on risk assessment and scenario planning.
“We don?t see anything on the horizon that could eclipse packet-switching, though
circuit-switching will always be around,” O?Hara explains. “But we know we can?t predict
future technology needs; we only know they?re going to be different.
“So what we?re trying to do here is embrace uncertain change.”
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