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Level 3 Communications' CEO Discusses Q1 2012 Results - Earnings Call Transcript

On a constant-currency basis, enterprise CNS revenues grew 3% sequentially, outpacing the decline in wholesale revenues. On a regional basis, North American CNS revenues grew 2% sequentially, with 4% sequential growth from enterprise and a 2% sequential decline from wholesale. In EMEA, our sequential CNS revenue performance improved on a constant-currency basis, declining 0.8% sequentially compared to a 2% sequential decline in the fourth quarter. On a constant-currency basis, wholesale and enterprise CNS revenues were flat sequentially. U.K. government CNS revenues declined by 4% on a constant-currency basis as expected. Our sales orders in EMEA improved nicely over the course of the first quarter, and we believe the business has stabilized. We expect to see stronger CNS revenue growth performance in EMEA over the balance -- for the balance of the year.

CNS revenues for the Latin America region grew sequentially, at 2% on a constant-currency basis, driven by strong growth in the enterprise business of 3%. As is typical, in Latin America in the first quarter, wholesale CNS revenues declined 3% sequentially on a constant currency basis.

Across the business, our CDN revenue grew 8% sequentially and is about 2% of our CNS revenues. Wholesale voice and other revenue was $204 million this quarter compared to $211 million in the fourth quarter. As we are continuing to manage our combined wholesale voice platform for margin growth, we expect continued volatility in Wholesale Voice Services revenue going forward.

At the bottom of Slide 4, for the first quarter of 2012, Level 3 CNS revenue churn remained stable, at approximately 1.3%.

Turning to Slide 5. We saw improvement this quarter in gross margin at 58.6% compared to 58.2% in the fourth quarter of 2011, primarily as a result of growth in high incremental margin Core Network Services revenue, network optimization and synergy savings.

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