June 2000 Where Some See Risk, Others See Opportunities By Peter Horner The genesis of Level 3 Communications dates back to the mid-1990s when Walter Scott, chairman of Peter Kiewit Sons', attended one of Warren Buffett's high-powered powwows in which various pillars of the corporate world are invited to give presentations on fundamental business trends. The list of attendees included Microsoft maven Bill Gates, whose presentation focused on the Internet and the Web, and how Internet Protocol was going to radically change the way people communicate. As was widely reported in the press, Gates opined that the trend spelled trouble for the traditional long distance carriers as well as the local Baby Bells. At the time, Level 3 CEO James Crowe was running MFS Communications, a company that was competing for a piece of the traditional telephone business. "Walter Scott came back from the meeting and said that any time someone says there there's a lot of risk in a problem, there is always an opportunity," Crowe recalls. "He said that perhaps I should look into it. Up until that point, I considered the Internet, like most people in the telephone business, a kind of messy, academic exercise that really wasn't ready for prime time. Nevertheless, we started what for us was the equivalent of the Manhattan Project. We assigned a team to it. Five months later we came to the conclusion that what the Internet was really about was dropping the cost of moving information verses the traditional system, and not by a little, but by a lot. "That was not a widely held view in communications at the time. Now it's almost approaching the status of conventional wisdom. "Anyway, we promptly decided we needed to shift our whole business plan because Internet-based companies were in exactly the same business we were and had a disruptive technology. That is, one that might be a little bit sloppy and messy at the time, but clearly had an enormously better cost structure, maybe 10-to-1 better. And we better shift our business plan. We ended up buying a company called Uunet Technologies and were heading down a path toward completely changing MFS over to an IP-based company. Shortly thereafter, WorldCom made us an offer we didn't think we could refuse, and we ended up selling MFS to WorldCom for a large amount of money. A group of us, though, still remained interested in pursuing the notion that IP was going to revolutionize communications, and we ended up starting Level 3." Return to the main article Something to Crowe About Table of Contents OR/MS Today Home Page OR/MS Today copyright © 2000 by the Institute for Operations Research and the Management Sciences. All rights reserved. Lionheart Publishing, Inc. 506 Roswell Street, Suite 220, Marietta, GA 30060, USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com URL: http://www.lionhrtpub.com Web Site © Copyright 1999, 2000 by Lionheart Publishing, Inc. All rights reserved.