Level 3 Throws A Wrench In The CDN Business

Level 3 (LVLT) has knocked content delivery networks Limelight (LLNW) and Akamai (AKAM) off their game with an announcement today it will price CDN services at the same rate as normal Internet access. Shares of Akamai were down $1.06 to $30.01 at market close, and shares of Limelight lost 24 cents to close at $9.32. Meanwhile, Level 3 rose 21 cents to end the session at $5.
Because Level 3 owns its network, it has the infrastructure to cut CDN prices by what has to be more than half. The move is one that would be hard for Limelight and Akamai to replicate, because they don’t own backbones of their own — in fact, they have to buy bandwidth from companies like Level 3 to offer CDN services to their own customers.
“Our costs operate at the same rate across both products,” Grant Van Rooyen, Level 3’s senior VP of content markets told GigaOM. “A bit is a bit.” Added Lisa Guillaume, VP of delivery services, “The new pricing isn’t a promotion, it’s a strategy.”

Level 3 can afford to offer the service because it bought Savvis’ CDN for the low price of $135 million late last year. Another diversified provider is Internap, which bought Vitalstream last year.
This is the latest move in the rapidly escalating CDN price wars, despite the rising need for content delivery services for the huge amounts of video flying around the web. CDN salespeople are going to have a heck of a job selling their wares as “premium services” in the coming months.