1. 1  2004 Level 3 Communications, Inc. All Rights Reserved. Kevin J. O'Hara, President & COO Level 3 Communications

2. 2  2004 Level 3 Communications, Inc. All Rights Reserved. The Information Technology Marketplace  Computing and information storage have improved exponentially  Until recently communications has improved very slowly  Central planning of key communications technologies has stifled innovation  The advent of market based technical development has changed communications from a utility to a technology business –IP technology –Optical technology Cost Index 1980=1 Billion 0 1990198020002010 2020 1 10 100 1000 10,000 100,000 1,000,000 10,000,000 100,000,000 1,000,000,000 Computing Communications Information Storage Level (3) Communications 1999

3. 3  2004 Level 3 Communications, Inc. All Rights Reserved. The shift From Utility to Technology Model Has Significant Implications For The Communications Industry  Rapid technical change has significant implications for the relationship between supply and demand  New network designs are required to deploy the right combination of rapidly changing network components  Rapid technical change has significant implications for the structure of the communication industry Level (3) Communications 1999

4. 4  2004 Level 3 Communications, Inc. All Rights Reserved. Level 3’s Plan  Construct upgradeable long haul and metro networks  Develop industry-leading operational and product capability  Introduce new technology and lower unit prices at rate which maximizes IRR  Seek to achieve substantial market share in horizontal market segments  Prefund expected cash requirements to free cash flow breakeven with appropriate cushion Level (3) Communications 1999

5. 5  2004 Level 3 Communications, Inc. All Rights Reserved. Softswitch Services Graphic  Addresses $700 billion voice market with IP economics  Softswitch architecture enables rapid, long term cost and price reductions  Services include  (3)Connect SM Modem  (3)Voice SM Level (3) Communications 1999

6. 6  2004 Level 3 Communications, Inc. All Rights Reserved. (3)Connect SM Modem Illustrates The Advantages Of The Level 3 Softswitch Network 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 19981999200020012002200320042005 WorldCom Genuity Sprint ICG AT&T Other Level 3 Source: Level 3 Estimates % Market Share Level (3) Communications 2001

7. 7  2004 Level 3 Communications, Inc. All Rights Reserved. Level 3 Genuity ICG Sprint Other Qwest AT&T MCI 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1998199920002001200220032004 % Market Share Source: Level 3 Estimates Impact Of Disruptive Technology/Economics Is Greater Than Anticipated

8. 8  2004 Level 3 Communications, Inc. All Rights Reserved. VOIP is Gaining Traction Due to Shifts in Market Forces n Broadband adoption n Improvements in technology n Lower cost n New features n Voice as digital media, separate from the network n Local voice services dominated by RBOCs, due to “last mile” n Long distance market dominated by IXCs and RBOCs n Opportunity for alternative providers to compete with RBOCs and IXCs for voice services Traditional Market Structure VoIP DriversVoIP Opportunity

9. 9  2004 Level 3 Communications, Inc. All Rights Reserved. Sources: J.P. Morgan; UBS; Morgan Stanley; Leichtman; Gartner; Citigroup; Sanford Bernstein; FCC; Company SEC filings Growth in Cable and DSL Households Broadband Growth in the U.S. U.S. households, Million Cable and DSL Penetration Percent of total U.S. households 9.5% 27.5% Cable DSL Cable DSL

10. 10  2004 Level 3 Communications, Inc. All Rights Reserved. Additional Access Options Absent alternative access methodologies incumbent access providers use bottleneck facilities as a governor on new service introduction But…  Consumer broadband penetration approaching 30%  Approximate 70% non-DSL  WiMAX and BPL represent additional challenges to traditional structure

11. 11  2004 Level 3 Communications, Inc. All Rights Reserved. Consumer VoIP Opportunity  Consumers benefit from cost savings and enhanced features  Cable Operators are pursuing VoIP as part of a triple play  Enhanced Service Providers are providing voice “over-the- top” of existing broadband connections  Vonage and Skype  IXCs  ISPs  RBOCs are deploying VoIP services as a defensive measure

12. 12  2004 Level 3 Communications, Inc. All Rights Reserved. Enterprise VoIP Opportunity  Enterprises have historically maintained separate voice and data networks  VoIP is enabling enterprises to converge these networks  Enterprises can save up to 40% with VoIP services

13. 13  2004 Level 3 Communications, Inc. All Rights Reserved. Market Size Estimates for VoIP Services are Accelerating (And may be under-estimated) Millions Of Subscribers

14. 14  2004 Level 3 Communications, Inc. All Rights Reserved. What Will It Take To Win In the New Industry Model? Applications Access Networks Backbone Networks Emerging Horizontal Industry Structure # Winning Players Attributes of Winners ■Many  Best brand, content and end-user experience  Services tailored to varied customer needs and channel preferences  A few players are likely to dominate in each application (similar to non-network-based software) ■Few  Large scale to cover high fixed capital and operating costs  A number will exist in each market given varied customer preference for price points and capabilities (eg. bandwidth, QoS, mobility) ■Few  High fixed capital & operating costs lead to few, large scale networks  High traffic growth favors those with low cost, scalable networks and the financial flexibility to invest  Growth in Applications favors backbone players with the network intelligence to distinguish between classes and quality of service.

15. 15  2004 Level 3 Communications, Inc. All Rights Reserved. Summary  Voice as digital media, separable from the network, is a critical industry phenomenon  Cash Flow impact to incumbents will cause structural change  Individual winners and losers are hard to predict but… attributes for success in the future will be different from yesterday