CTO with backbone

IF YOU HAVE A DIAL-UP Internet connection at home, you’re likely to be connecting via Broomfield, Colo.-based Level 3 Communications, says the company’s group vice president and CTO Jack Waters.

Overseeing some 500 direct and indirect reports, Waters manages the architecture and network-capacity side of the backbone provider. In the midst of one of the toughest markets for the telecommunications sector, managing to profitability, price-performance curves, and other financial concepts is one of Waters’ most important roles.

The CTO, who came to Level 3 from a “traditional engineering organization,” hadn’t always considered how network or IT costs could affect an entire company. But that is now something he routinely and repeatedly teaches to staff. Everyone “has to quantify the financial benefits of a technology to the company. You can’t just pitch the technology,” Waters says.

Learning to marry financial management to technical innovation has been “a process — not an overnight event,” Waters says. But as a result of his efforts, the CTO finds his engineers are “pretty good finance people and understand where the pressure points in [the price-performance curve] are.”

This dual focus on finances and technical innovations has helped the backbone provider succeed where others have failed.

“Level 3 is fairly focused on the backbone market. They haven’t spread themselves too thin. They make their money with the wholesale backbone business to other ISPs and have picked up some significant customers,” says Daryl Schoolar, analyst at InStat MDR in Scottsdale, Ariz.

In July, Level 3 received a $500 million investment from Warren Buffett’s Berkshire Hathaway Group and other investors. Based on statements made by Level 3’s executives, media outlets and industry analysts are speculating whether Level 3 will be making acquisitions in the near future.

In the past 30 months, Level 3 executives say the company has built a 20,000-mile, multiconduit, intercity network and 33 multiconduit, metropolitan networks in North America and Europe. The company also constructed a transatlantic cable system connecting North America and Europe, and has secured 5.6 million square feet of technical space in 74 datacenters serving 57 North American markets and 12 European markets.

In September, Level 3 and ISP EarthLink announced an agreement to increase the ISP’s access to Level 3’s dial-up Internet infrastructure in hundreds of U.S. cities. Separately, the companies extended a pre-existing contract for Level 3’s managed modem services.

The management modem service includes Level 3’s recently patented “softswitch.” This software-based technology enables a cost-effective way to control and process phone calls, dial-up Internet access calls, and other applications on telecommunications networks, and is a favorite of Waters. Via this technology, Waters oversees more than 13 billion minutes of traffic per month. In the second quarter, the company reported that softswitch accounted for 40 percent of its revenue for the year.

“Softswitch serve is where we have done an unbelievable amount of innovation. It’s a set of systems and hardware that leverage IP and provide a function similar to a circuit switch,” Waters says.

In addition to innovation, Waters also keeps his eye on the customer. “I spend about half my time with customers. I have to understand what their needs are in this challenging environment. I take this understanding and figure how we can change our network to solve a problem for them — whether it’s economic or functional.”