Will Level 3 (LVLT) Drive Down Akamai (AKAM) Margins

Alley Insider is reporting that as Level 3 (LVLT) moves into the content delivery network business dominated by Akamai (AKAM) that it will undercut what the industry charges most clients by a significant amount. The site reports that “Level 3 plans to sell CDN services at the same rates it sells plain-vanilla Internet bandwidth.”

Akamai’s shares are already under tremendous pressue from lower pricing offered by several private companies and by recent IPO Limelight Networks (LLNW).

Akamai traded for almost $60 last February. It now changes hands at $30. Limelight traded above $24 after its IPO and now sits just above $9.

Because Level 3 has such a large network and bandwidth of its own, it may be able to offer content delivery at a large discount. It is hard to imagine that it can make much money by pursuing the tactic.

It could be that, as prices drop for customers, all three companies lose.

Douglas A. McIntrye