Presentation Summary

I Strategic Overview
I Financial Overview
I Consolidation Opportunities
I Summary
Level 3s Plan
I Construct upgradeable long haul and metro networks
I Develop industry-leading operational and product
capability
I Introduce new technology and lower unit prices at rate
which maximizes IRR
I Seek to achieve substantial market share in horizontal
market segments
I Prefund expected cash requirements to free cash flow
breakeven with appropriate cushion
What Changed
I We did not anticipate the combined and mutually reinforcing
effects of:
Deferred purchases by established carriers
Significant cutbacks in spending by earlier stage, financially
distressed dot coms and emerging carriers
A weakening economic environment
Turmoil in the capital markets
I As a result:
Our customer focus was not appropriate
Disconnects and cancels have largely offset new sales
Our cost structure was not appropriate
Our leverage was too high
Effects On Level 3s Opportunity
I The opportunity is deferred for several quarters to the
extent of the economic and communications
spending slowdown
I The opportunity is reduced to the extent long term
demand is less than previously anticipated
I The opportunity is improved to the extent there is less
investment by competitors
Level 3s Response to Slowdown in
Communications Industry
Our goal is to be well-positioned to prosper when the
industry recovers
Focus on sales to financially solid companies with
existing demand
Leverage Level 3s unique network
Continue to improve operational capabilities
Maintain financial strength and fully funded position
Reduce expenses to current level of revenue
performance
Ensure capital structure is appropriate
Additional steps to increase cash cushion
Opportunistically pursue acquisition opportunities
Focus on Sales to Satisfy Existing
Demand
I Targeting top 300 users of bandwidth, including
International PTTs
RBOCs and other ILECs
Broadband CATV operators
Major IXCs
Established CLECs
Major ISPs, Portals, Media, Content providers
I Current recurring revenue mix
Network Providers..55% Creditworthy.75%
Service Providers39% Moderate Risk..12%
Content Providers.3% At-risk.13%
Enterprise and Other3%
Leverage the Unique Level 3 Network
I 57 upgradeable North American
metro networks
I 16,000 mile upgradeable North
American intercity network
I 9 upgradeable International metro
networks; 7 expansion cities
I 3,600 mile upgradeable Pan
European network
I 3.4 million square feet of colocation
facilities built out
I Sufficient undersea capacity
Operational Strength
I Level 3s operational capabilities have become a key
competitive advantage
Average provisioning time is 12 days
Customer Commitment Dates met are 98%
Customer Request Dates met are 92%
ONTAP is key differentiator
I Our service quality enables us to successfully sell
services to larger, more established companies
Our Customer Strategy is Working
Financial Overview
Financial Strategy
I Maintain fully funded business plan
Ensure that expenditures are in line with revenues
Maintain appropriate capital structure
I Improve funding cushion in order to pursue value creating
opportunities
Capital investments
Acquisitions
Debt repurchases
Cost Management Initiatives
I Objective is to ensure Level 3 remains fully funded with a
adequate cushion, absent an improvement in the
communications market
I Continued reductions in network expenses
Communications gross margin improved to 85% for Q302;
81% without one-time items
New sales are focused on-net, resulting in communications
gross margins over time of approximately 80%
I Initiatives to further reduce annualized SG&A
Reduced headcount by approximately 50%
Other SG&A expense reductions
Will continue to evaluate modest SG&A reduction
opportunities
Capital Expenditures
I Upfront capital expenditures are decreasing rapidly as the global
network is completed
I Approximately $100 million of base capital spend in 2002;
balance million tied to incremental sales
I Capital intensity ratio of 25 to 50 cents in one-time capital
expense for every dollar of incremental annualized revenue
Improved internal processes
Available capacity and inventory
Continued price performance improvements in equipment
Capital Structure
I Ensure that capital structure is appropriate for business plan
I $2.3 billion face amount of debt reduction completed through Q302
$1.8 billion cash repurchases
$500 million in debt for equity exchanges
I Total debt reduced to $6.4 billion and annualized interest expense
reduced by approximately $180 million
I Level 3 will continue to evaluate leverage, based on short term and
longer term business outlook
I No significant debt repayments until 2005
I Senior secured credit facility amended during Q302
Significant Improvement in Cash Flow
Free cash flow has continued to improve as a result of increasing gross
margins, reduced SG&A costs, lower capital expenditures and
continued de-leveraging
(1) Defined as Consolidated Adjusted EBITDA Capital Expenditures Working Capital Requirements Net Cash Interest
Expense. Excludes non-core asset sales, cash used to repurchase debt and acquisitions.
Hi stori cal Free Cash Fl ow
(1)
($1,500)
($1,250)
($1,000)
($750)
($500)
($250)
$0
Q3 ' 00 Q2 ' 01 Q1 ' 02 Q4 ' 02
F
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C
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F
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(
1
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Steps to Increase Cash Cushion
I Non-core asset sales
9.6 million shares of Commonwealth Telephone
sold in 2002 for $332 million; approx 1 million
shares remaining
Toll road operations sold in January 2003 for $46
million in cash consideration; consolidated debt
reduced by $139 million
I Excess real estate
I Additional cost containment measures
Consolidation Opportunities
I The communications industry is substantially overbuilt
I For transport networks, a significant portion of costs
are fixed
Most costs are duplicated by each provider
Substantial synergies can be realized by
consolidating traffic onto fewer networks
I Scale results in significantly lower unit costs, therefore,
the industry will naturally consolidate into a few large
providers
I Customers will migrate to a consolidator that emerges
as the clear survivor
Why Should The Industry Consolidate?
I Level 3 has the most efficient network
Most efficient transport infrastructure
Most efficient switching infrastructure
I Most competitors networks are either
Older, inefficient legacy networks, or
In part, pieced together from swapped or purchased
fiber
I Level 3s 80+% gross margins and growing EBITDA
margins are evidence of competitive advantage
Why is Level 3 Uniquely Positioned to
Consolidate the Industry?
I Revenues to come predominantly from services that are
part of Level 3s core offering and from customers that are
part of Level 3s target customer group
I The majority of the traffic can be shifted over to Level 3s
lower cost platform
I By moving the traffic onto Level 3s network, Level 3 can
reduce expenses of the target by a significant percentage
I Guiding financial principles for a transaction:
Must preserve Level 3s fully funded status
Must result in a substantially improved financial position
Must create significant value for Level 3 stakeholders
Opportunities Must Meet Certain Criteria
I In November 2002, Level 3 announced an agreement to
acquire substantially all of the assets of Genuity
Level 3 will pay $242 million in cash, subject to
adjustments and assume certain operating agreements
To facilitate the transaction, Genuity filed Ch. 11
bankruptcy
Level 3 will not be assuming Genuitys outstanding debt
I There is a unique fit between Level 3 and Genuity
Both companies are Tier 1 Internet backbone providers
with industry leading quality of service
Both companies are experienced providers of optical
and IP based services
More than 80% of Genuitys revenue is consistent with
Level 3s transport, managed modem and IP services
businesses
Level 3 To Acquire Genuity Operations
I This transaction will create significant value for Level 3
stockholders
Given the similarities in terms of service offerings and
geographical reach, the transaction allows for significant cost
efficiencies
On a pro forma basis, this transaction accelerates Level 3s
expected free cash flow breakeven date
This transaction preserves Level 3s fully funded status and
strong liquidity position
I Closing is expected to occur in February
Genuity has determined that there are no other qualified bids
Sale Order Hearing Jan. 24 authorized purchase
Transaction is subject to final approval by the bankruptcy
court and certain government regulatory agencies
Level 3 To Acquire Genuity Operations
Summary
I We have been affected by the economic slowdown
I We are taking steps to ensure we remain positioned to
benefit from the inevitable recovery
We are focused on sales efforts and improving cash flow
We remain fully funded, a major advantage in this market
We have sufficient financial dry powder to pursue
opportunities
I We are well positioned to help consolidate the industry