Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Tim Horan with CIBC World Markets. Please go ahead.
Tim Horan - CIBC World Markets
Thanks, good morning. I am always kind of struggling to get some proxy on volume growth. And I think data centers might be kind of one way to help us understand what growth was maybe a year ago, and kind of where we are at now.
And maybe if you could talk about that and maybe while we're on the data center business, could you maybe size that for us, in terms of square footage or revenue, and what your utilization is there, because it seems to be pretty strong business these days.
And Jim, do you think in that business you might be better suited operating that more as a neutral provider, like Equinix is doing, and does that limit you a little bit? Thank you.
Jim Crowe
With respect to your third question, we do operate as a neutral provider, in the sense that we certainly don't require anyone to use Level 3's bandwidth, in order to rent racks or cages or space from us. Although we also believe, that locating our data centers directly on top of our optical IP network, presents a substantial opportunity for our customers.
Those that have bandwidth as a large portion of their costs can enjoy real benefits by locating on our networks and eliminating the expense of the local access expense of getting to a backbone. But we do operate as a neutral provider.
With respect to your question about volume growth, I spent a fair amount of time talking about that at our Analyst and Investor Conference, and I said at that time that volume growth is accelerating, and it continues to be, if by the way, you are talking about IP volume growth, and I assume you are, Tim?
Tim Horan - CIBC World Markets
Yes.
Jim Crowe
Yes, it is accelerating, and it is well over 100% at this point. I also, and I would refer you to my comments, cautioned in many ways that those kind of metrics have to be carefully scrutinized, and have to be part of an overall context.
The business is changing. The mix of edge versus backbone is changing, and we are seeing real substitutability with Ethernet based products, private line, waves, and IP. So comparability is really tough, but IP growth on our backbone is accelerating, and is well over 100%. Kevin, do you have any comment on the data center business, and growth in that business?
Kevin O'Hara
I guess from our perspective, the number one point, Jack Waters at the Investor Conference went through some of the physical metric, the physical metrics of our colocation business. We continue to opportunistically augment some about those facilities, to support the ongoing sales. We are not actively looking at building new data centers. Our utilization rate varies by market.
It's very, very high in the Tier 1 markets. It's a bit lower in the Tier 2, Tier 3 markets, but that industry in terms of the raw data center, is tracking towards more real estate rates of return, and requiring tremendous amounts of capital, to add the power and cooling required, to support the needs of internet-based companies and data center applications.
We think we can get better return by focusing on our network assets, and augmenting as I said, on an opportunistic basis our data centers. And working, more importantly, or as importantly, with other independent data center operators and data center owners that need connectivity to make their data centers valuable. So we are kind of coming at it from a multi-pronged approach, not looking at this time to put significant new capital in new data centers.
Jim Crowe
I want to emphasize Kevin's last point. Data center business, the colocation business is a good business. Volumes are growing. Prices are going up, not down. However, we believe that our capital is better allocated to expanding our network in the metro, given changes over the last three or four, five years in the industry than any other place.
We see almost limitless opportunities to expand our network in the metro. Certainly, for quite a long time, given the moves, or the increases in the wireless business and in broadband to residences. And that is where you should expect us to allocate our capital.
Tim Horan - CIBC World Markets
Thank you.
Jim Crowe
Next question?
Operator
Our next question is from the time of Tom Watts with Cowan and Company. Please go ahead.
Tom Watts - Cowen & Company
Good morning, everyone. Couple of quick questions, one, what was the purchase price for the AT&T assets, and could you comment on how that well, those will be integrated and help in your drive to on net traffic?
And then second, as you are focusing more on solution selling and particularly in the business and media sectors, could you comment on any additional product capabilities you would like to see, and could we see acquisitions focused on the product side, or technology side?
Then finally could you just comment on customer receptively so far onto offering the CDN services with the Savvis assets, and do you see adding more other types of CDN products, other than what the Savvis assets are best suited for?
Jim Crowe
Yes. I am going to ask Kevin to answer the first question. Your questions 2 and 3 are actually related. That is, would we consider acquisitions of product or technology or both? We have done a number of such acquisitions over the years.
Most recent is the CDN assets, where we were focused on acquiring the intellectual property, the enabling intellectual property from Savvis to allow us to offer CDN products.
And with respect to your second question, we have our product rollout, as Kevin explained, coming up here in the next month or two, and I think we are better, we wouldn't be rolling it out if we didn't already have solid indications of interest from a broad range of customers.
Remembering that we serve today, that is Level 3, today serves both emerging media companies, a broad range of so-called new media companies, and traditional media companies. All the networks, all the sports leagues, many of the news organizations all are current customers. As well as those newer media companies, the mega-portal companies, the video companies, those that are offering video online, et cetera.
So we have contacts, and we believe that we have receptively with respect to additional product offerings, yes, you should expect those. We spent quite a bit of time at the Analyst and Investor Conference talking about how early we are in the development of mega file, mega content offerings over the Internet.
How today it's largely short form video, it's largely low quality, that with respect to what consumers are traditionally used to having, and depending on what part of the video market you are talking about, there is a different answer technically, in terms of the product that best suits today's mix, and that mix is changing.
So you should expect to see us offer additional services, additional technical developments over the coming quarters. Kevin?
Kevin O'Hara
Yes, on your question on AT&T, that acquisition total consideration was under $5 million, there were roughly 200 buildings that we acquired from AT&T as part of their required divestiture, as well as the fiber to connect those buildings back to a Level 3 facility in each of those markets where the buildings were.
We said earlier in the year that our goal this year was to grow on that buildings by 750 to 1000, along the way we assumed we would be constructing many of those. This is effectively a buy versus build analysis, where it was favorable for Level 3 to acquire both the rights and the fiber to those locations from AT&T, rather than constructing them all ourselves.
Tom Watts - Cowen & Company
Great. Thanks.
Jim Crowe
Next question?
Operator
Our next question is from the line of Mike McCormack with Bear Stearns. Please go ahead.
Mike McCormack - Bear Stearns
Thanks, guys. Can you just give us a sense on the EBITDA for second quarter, I mean you've got the run rate of synergies that I think you said $70 million, which I assume has been ramping and probably got to that level towards the end of the quarter.
So there must be, you have got integration potentially a little bit higher, but maybe the puts and takes on how we got the guidance for next quarter?
And then secondly on the Top 10 customer base, can you give us a sense for maybe how that revenue is tracking as a percentage of revenue excluding the M&A transactions, so sort of an organic run rate of the Top 10? Thanks.
Sunit Patel
Let me, I'll take the question on the EBITDA for the second quarter. A couple of things, I think, one, we had said at the beginning of the year that first quarter, the midpoint of guidance was 160 and we improve on average, on average about $40 million a quarter.
So if you look at that from that perspective, 160 plus 40, you would be at 200 that would be 360 for the first half of the year. What we are reporting is 170 for the first quarter, the second quarter is 190, the midpoint, so we're still at 360. So the first half outlook really hasn't changed from what we said previously.
There is a timing shift, and as I indicated in my comments, some of that timing shift is related, relates to the timing of integration expenses, a little lighter than we thought in the first quarter, a little more than we think in the second quarter.
I think probably the most important thing is that we are managing, if you look over the course of the year, we are managing three different curves. We have got integration costs. We have the synergies from operating expenses, and synergies from network expenses.
So, if I go through each one of those with respect to integration expenses, we expect them to be much heavier first half of the year, and then ramp down second half of the year. The operating expense savings we will see those coming in first half of the year, some in the third quarter, and then that will slow down.
The network expenses start slower at the beginning of the year, they accelerate over the course of the year. So when you add all those curves together, that adds to the point that Kevin was making, is that we will see, while we have saved $40 million on average every quarter, you will certainly see that weighted more heavily towards the second half of the year compared to the first half of the year, as Kevin was explaining.
Mike McCormack - Bear Stearns
Sunit, can you sort of break apart the synergies versus...
Sunit Patel
When you said network expense, network expense savings will accelerate throughout portion of the year.
Jim Crowe
Yes, network expense synergies or savings, yes.
Mike McCormack - Bear Stearns
So, can you sort of break apart those two, are the networks coming in later in the year, what percentage or dollar amount of synergies are you expecting from each?
Sunit Patel
Well, yeah, we said of the $200 million in savings, we said about $120 million would come from the operating expense side, and $80 million will come from the network expense side.
And as I mentioned today, of those numbers, you know, of the 120 in operating expense savings, by the end of the first quarter we achieved $55 million, and of the $80 million in network expense savings, we achieved about $15 million.
And looking at it today, I would say on the margin, we probably expect the network expense savings to be a little better than that, as we go through the year.
Mike McCormack - Bear Stearns
I am assuming those run rates were more achieved towards the end of the quarter as the process went on?
Kevin O'Hara
That's right, that's right.
Mike McCormack - Bear Stearns
Okay.
Kevin O'Hara
And Mike, could you qualify, not qualify, but clarify your second question please about the Top 10?
Mike McCormack - Bear Stearns
I was just trying to get a sense on the Top 10 customer base, and what they represent as a percentage of revenue. Obviously your M&A transactions have reduced their overall percentage, but the base itself, you know, how stable is the environment?
I guess AT&T was making comments about, you know, it's maybe a little more sticky to bring the revenue that you guys have from them back on net, outside of the SBC contract from WilTel, but legacy AT&T stuff, maybe a little more sticky, maybe takes a year or two.
But there is still in their opinion, an opportunity move some of that IP traffic back on net, so just trying to get a sense for how stable that Top 10 customer base looks?
Kevin O'Hara
Yeah, I would, we're pretty comfortable with the revenue in dollar terms, the revenue has been growing. The types of business that we have with all of those customers we think is pretty important.
Some of the business that we have with those customers moves around on a month-over-month basis, and changes within each acquisition. For instance, Commonwealth of Pennsylvania wasn't even a customer of ours until the TelCove acquisition.
And as we've seen industry consolidation, we've seen the mix of revenue from some of those Top 10 customers move around. Voice, for instance, moves off fairly quickly. IP has moved off pretty quickly in the past, and we pointed that out in 2006, for instance.
But overall we're pretty happy with both the mix of business that we have, the stability of that business, and that base on our Top 10 tends to be growing in absolute terms, despite all of the moving parts.
We're pretty pleased with the trends, in terms of percentage of our overall business, which is decreasing, but in absolute dollar terms, actually increasing.
Jim Crowe
Yeah, I think it would be important to note that each of the companies in our Top 10 list, particularly Carriers, are going do their best to manage their network expenses, just as we do.
And there will be continuing opportunities, I am sure, for the larger integrated organizations to manage those expenses, particularly in the service territory.
Our goal is to be their out of service territory partner of choice, particularly in those areas where we have invested substantial amounts of money in metropolitan facilities and acquired companies that have invested many billions in facilities.
So, we believe there is a very large opportunity to serve their out of service territory needs, and that that opportunity is not in conflict with their desire to manage their network expense, and in fact is generated in no small part by their desire to manage their network expense.
Mike McCormack - Bear Stearns
I guess we heard the buy versus build decision on some of these, as you are pointing out, out of reach circuits tends to favor continuing on with third-party providers, I think perhaps a good thing?
Jim Crowe
It is pretty tough, particularly in those areas where somebody has density and existing network to justify a Greenfield build. I don't have the number handy, but if you look at the investments made by all of the companies we have acquired, it's a very large number measured in the tens of billions.
Mike McCormack - Bear Stearns
Okay. Thanks a lot, guys, for the color.
Jim Crowe
You bet.
Operator
Our next question is from the line of John Hodulik with UBS. Please go ahead.
John Hodulik - UBS
Good morning. First question is for Kevin, if you could provide a little more detail about the strong pipeline you talked about in the first quarter. You know, it is especially impressive given the consolidation of the sales force, but can you talk about whether or not it is due to just a stronger industry environment and because of pricing, or do you guys think you are taking market share in those wholesale segments?
And then second, question for Jim, what are you seeing in terms of the M&A environment, is there any change since we last talked at your Conference, or anything out there look particularly interesting, or any hold that you guys are looking to fill at this point? Thanks.
Kevin O'Hara
I will take the first question John. It's hard to pinpoint the exact source of the increased sales. But the sales in absolute terms did increase from some of the parts, we believe that the industry consolidation; both that that we led, and that where we were the indirect beneficiary or the direct beneficiary of someone else's actions is a probably, a more accurate way to put it. Is a big part of that, importantly though we are seeing demand accelerate.
We are seeing customer requests increasing for services that we previously sold, transport services and IP services are the poster children for that as Jim mentioned earlier IP we've been seeing increasing demand not a leveling off of demand.
We've also seen when we have brought sales folks in from various companies. That the portfolio of products and geographies that are available through the Level 3 network are greater than what any of those companies previously had.
And with each successive acquisition the portfolio of products and geography available to the legacy Level 3 sales force, is also greater than what we had before. And our ability to go back and up sell to existing customers is probably outpacing, what we had anticipated, in fact it is not probably, it is outpacing what we had anticipated.
The power of having metro facilities in 120 markets plus a very large transport backbone; plus one of if not the largest IP backbone is presenting a compelling proposition to many of our customers. And we think that we're seeing the benefits of that. And the pricing environment while, I said that there clearly is pricing pressure in some of the transactional markets.
Our closing prices for our solution sales do not appear to be getting affected by that. And in some cases we continue to see pricing increases despite some of that transactional pricing pressure. You put all those things together and it falls into the category of we want to know why.
But right now we are pretty happy with the results both what we have closed as well as, the funnel that we continue to track, the funnel does not look like it's decreasing; the funnel looks like it is holding steady perhaps potentially increasing a bit.
Jim Crowe
I'd also comment on something that Kevin said, a number of times previously, that is, our wholesale group is a larger user of our metropolitan facilities than our business markets group; that's simply another way of saying what Kevin said, when you can offer an end-to-end service.
Including the metropolitan facilities that, we now have in 120 cities it is a very compelling proposition. When combined with the kind of advanced services that Level 3 traditionally had.
With respect to your question about M&A, I will start with the qualifier we always start with, until we are comfortable that we have one platform; one set of business processes and one organization; we are not going to take on. The hurdle for any acquisition is going to be that might affect that outcome, and goal is going to be quite high.
The M&A environment, we think continues to be robust, we still think that consolidation is sensible, at the end of the day this is a scale business, we made no secret of what we think is desirable; they come in three categories we repeated it in our Annual Report. That we have backbone acquisitions where we can combine customer bases, and reduce facility and operating expense.
We have the really important acquisitions that expand our metro footprint there it is a build versus buy, we have no doubt that we would be building. But where we think the buy improves present value of our efforts we will do it, and then finally it's back to a question asked earlier. Where we think we can add our capability an important piece of intellectual property. A technology we will certainly do it that is a capability.
But until we are comfortable, that we have our arms clearly around the integration effort. The hurdle is going to be very high.
John Hodulik - UBS
Great. Thank you.
Operator
Our next question is from the line of Chris Larsen with Credit Suisse. Please go ahead.
Chris Larsen - Credit Suisse
Hi thanks, Jim you mentioned in your comments that you are seeing IP growth in excess of 100%. I wonder, if you can give us an idea of where you see that coming from, is that the shift from TDM over to VoIP, is it IP video, is it just internet traffic in general.
And maybe there is a way you could also classify perhaps by type of creator of that whether it be a net Internet content company versus an enterprise company. Or a telco another telco who, is handing you that much more traffic, where are you sort of seeing the pockets, or what is sort of the leader of that incremental demand.
Jim Crowe
Yeah. It's not often we get asked a question that we can give a really, really clear black and white answer for; it is not Voice-over-IP, that is certainly a rapidly growing part of our business. But Voice is not a large consumer of bandwidth in relative terms; it's not enterprise, in fact in the future.
I think enterprise adoption of video for various reasons of moving images. As opposed to static is going to be another accelerator of traffic. Today traffic is being generated by video to consumers by content mega-content files to consumers, we see it we measure it.
And the sources to your question are the usual suspects you read about, the new generators of video content that people are excited about. Video distributors on the Internet, social networking sites are increasingly becoming exchangers of video and photos, which are very large. You see quite a number of pay sites now that offer rather short form video, some larger form larger file content and traditional media companies.
I am sure you read the same things and see the same things we do. We don't know of a traditional media owner sports leagues those that own big libraries of desirable entertainment content. Who aren't actively exploring monetizing that content over the Internet. And I'd repeat we are at the very early stages of the impact of mega-content on the Internet.
In fact take a look at our annual report this is a subject explored in a great deal of detail, in the report we just mailed, there is a special insert that talks specifically, about the effective content on our network and on the internet broadly.
Chris Larsen - Credit Suisse
Jim is there any differentiation in the profitability of an IP traffic. If it's VoIP versus video versus a normal web page or an e-mail.
Jim Crowe
Yeah. Even today a VoIP or a voice bit that either originates or terminates on the public switch telephone network. Is priced two or three orders of magnitude higher, than a VoIP bit that originates and terminates on a broadband connection.
Let me say that again, if it costs you $0.02 a minute at either end to originate or terminate on a cellular call or a landline call. You're paying roughly 1500 times per bit what you'd pay if it both originates and terminates on a VoIP a broadband connection. So obviously, there is a big arbitrage of opportunity and there are lots and lots of folks who are moving to take advantage of that.
We've said for quite a while that overtime and it's going to be a long time. It's not going to be a few quarters. We don't see any reason to think that voice is going to be distinguished from other forms of bits on broadband connections, that is like email.
It isn't free but you don't pay any incremental costs for it, its part of your broadband connection. So VoIP, Voice-over-IP, is going to have a product cycle like every technology business, today it is exciting has a lot of margin in it. But its going to over time be squeezed down that's why we are focused on content so heavily because that's the exciting opportunity for the future.
Chris Larsen - Credit Suisse
Thanks.
Operator
Our next question is from the line of Jonathan Chaplin with JPMorgan. Please go ahead.
Jonathan Chaplin - JPMorgan
Good morning. Thank you. So two quick questions, if I may. Firstly, I am wondering if you can give us what the sequential growth in organic revenue was, in the fourth quarter a year ago, compared to the 3% that you reported this quarter.
And then, as I look out to guidance for next quarter, it looks like you are looking for sequential organic growth of about 3.5%. I think the number a year ago was 2.5%. So, it looks like you are seeing a steeper acceleration sequentially this year than last year? I just wanted to make sure that was correct.
And then finally, the EBITDA number this quarter was definitely very impressive relative to what people were expecting. I am wondering if you can give us a breakdown of how much of the upside came from the higher SBC contract revenues versus you know, potentially higher EBITDA than you expected from just the underlying Broadwing revenues versus synergies.
And then, you know what the integration cost component was? It seems like integration costs are probably higher than expected. So, given that you weren't laying off people faster than expected, seems like it's particularly impressive in the context of that. Thank you.
Kevin O'Hara
Jonathan, this is Kevin. I will take the first one. Last year, if my memory serves me, Q4, to Q1 '05 to Q1 '06, core organic growth was about 2%, and we said at that time that we were anticipating 20% annualized growth organically over the course of the year.
We started at 2%, we ramped up a little bit in the second quarter, but we came in, in excess of 20%. I want to say it was 23% or 24%. On a fully annualized basis, but it was in excess of 20% for the year starting with 2%.
This year we have got a much bigger base, so we are guiding to 17%, and we are off to a better start. So the ramp is actually less steep than last year, not more steep. So, that's why we are feeling quite good about it.
Jim Crowe
Well, I know...
Jonathan Chaplin - JPMorgan
It will become stronger earlier in the year.
Jim Crowe
I know everybody on the call understands compounding even better than I do. But just for reference, a 4% quarterly growth is 17% annualized. So, and we said this quarter we were a bit over 3%. So we feel pretty good about, and for the reason that we have expressed our confidence in our full year guidance. Sunit?
Sunit Patel
Yeah, on the EBITDA question, some of you are right. Some of the out performance was due to the SBC contract but, as we said before, that is pretty low margin, on the margin that's 20% incremental margin. So, compared to the midpoint of our guidance, you can see that was only a small part of the contribution of our performance.
I think some of it, as you pointed out, was just better performance in the overall business. On the integration costs, it is a little different than what you indicated, because you're right, we had quite a bit of reduction in head count, but some of that was voluntary.
So, that we didn't incur as much in integration expenses, and then we had some timing-related efforts on integration expenses, which is why I say that the integration expenses were a little lower in the first quarter, and some of that is timing related and will increase in the second quarter.
But overall, you are right. That is why we said we think that the first quarter was a pretty good quarter in terms of profitability.
Jonathan Chaplin - JPMorgan
Great. Thank you very much.
Jim Crowe
I had a comment that for two years now we have seen a ramp in '05 and '06 both in core revenue. We've seen a ramp from first quarter to fourth quarter. That is for variety of reasons.
I think, Kevin talked about them in his remarks, but that has been typical at least for the last couple of years, where we start the year in the 2%, 3%, and ramp up to the 6% to 8% quarterly sequential growth, and we are not, certainly not guiding for that kind of a ramp. But, it does underlie our confidence in 17% growth for our core revenues for the year. Next question?
Operator
Our next question is from the line of Qaisar Hasan with Buckingham Research. Please go ahead.
Qaisar Hasan - Buckingham Research
Hi, good morning. I also had a couple questions more on future growth in revenue. The first one was on your data centers. Now, you mentioned that especially in some of your Tier 1 markets you have got fairly high utilization rates, and since you're not willing to invest in adding new capacity with them.
I am just wondering, if you face somewhat limited growth prospects over there, at least in terms of square footage growth, and whether or not that could be a drag on your transport and infrastructure category revenue growth metrics in the last few quarters, and also going forward?
And related to that, to the extent that you feel like you are better off investing money in other areas where the returns are higher. Would you ever actually just consider selling this business off to someone who could perhaps do a better job with it, and then reinvesting those proceeds in some of your higher margin, higher return businesses?
Jim Crowe
Yeah. I think, with respect to your first point about whether our investing, or our indication that we wouldn't be looking to invest substantial funds in growing our data center, will cause a drag on transport.
I think what we would say is we are not investing in our data centers, because we see enormous opportunities to invest at much higher returns in metropolitan facilities, and we believe that the result of those investments will be a much, much bigger contributor to transport growth, than anything we'd see out of data center.
With respect to selling our data center assets, we don't see that as in the cards at this time. That is a strategic matter for certain of our customers. Certainly, there are those who are co-location customers of ours, and we should make a point here.
When we talk about our customers in our facilities, that is not comparable to the kind of data center services that maybe some other companies offer, which is a rich set of server maintenance, perhaps even application hosting, a broad range of services.
What we offer is co-locations, space that has at its core, core value proposition, access to a very robust set of optical and IP assets, that go very deep and very broad across the country. And for a number of our customers, that is a strategic matter. That is a real benefit.
They don't come to us because they are looking to outsource management of operating, server operating systems, or share environments or looking to reduce server expense. That is the business of other people. They come to us because they are trying to manage the bandwidth costs, and locating on top of our network provides just such an opportunity.
Qaisar Hasan - Buckingham Research
Okay. The other question I had was on government revenues. Obviously, you were part of one of three short-listed, that is, for the network university contract. I understand you guys are actually bidding on your own for the smaller portion that comes up for a final decision I guess in a couple of months.
So can you give us a sense of how accretive some of these contracts could be for you, whether you think that you would generally expect to kind of maintain the market share that you have in the government side right now?
Kevin O'Hara
Yeah. Today, while we are pleased with the government business in terms of market share of the overall government spend, it is extremely modest and our expectations in the future is that it remains modest. There is no expectation that we grow materially as part of any of our thinking of the future.
That being said, that doesn't mean that we are not attempting to, we are a party to one of the success that not short-listed, but successful bidders. But just for a very select set of services, something that is going to be a nice contributor, but not material in the overall scheme of things.
And we are, and have for two or three years now been participating directly, pursuing the enterprise portion of the government contract, even if we were to get an award there, we wouldn't see any contribution in '07, and it is doubtful that even any contribution in '08 would be meaningful.
So we're still active in the government market, it is a nice incremental market for us. We are not expecting at this time that government does anything that moves a needle for us, at least in the short-term.
Jim Crowe
And I'd comment further that, I think both Kevin and I have said at the heart of our business strategy is selling the right services, to the right customers, in the right locations. That's what we believe, results in superior gross margins, particularly incremental gross margins, and superior EBITDA margins, particularly incremental.
And that means selling on net services that scale rapidly. We generally don't see ourselves as purveyors of managed services, complicated customized services, in much of government contracting, that is precisely what the government's looking for.
We much prefer to say here is the set of services we have on net, very high speed, very scalable services, and ask where can we sell those services, either as a subcontractor to others, where we can add some value, or in a limited set of places where the government may wish to buy those services. Now there is always exceptions there is always opportunities at the margin, but in general, that is what drives our strategy.
So, on net services, that scale rapidly that result in kind of margin performance that we are seeking.
Qaisar Hasan - Buckingham Research
Thank you. That's very helpful.
Operator
Our next question comes from the line of Ana Goshko with Banc of America. Please go ahead.
Ana Goshko - Banc of America
Hi. Thank you. On your leverage profile goals, if I take the high end of your 2008 EBITDA guidance, which is $1.3 billion and then your debt balance, which there aren't really any material maturities coming up, I get to about 5.3 times at the end of '08.
And your intentions are more aggressive than that. You said that you would be able to achieve somewhere between 3 times and 5 times sometime within '08. So, wondering what your intentions are to really meet those more aggressive leverage reduction goals?
Sunit Patel
Yeah Ana, you know, just as this year's indicative of last year, next year less so, but if you look at the annualized EBITDA, even over the course of next year and maybe 1300 is a good way to look at it, I think we approach the 5 times just from an operational perspective. At the same time, keep in mind we have always been active in terms of liability management.
So depending on this year and next year, we will continue to have the opportunity to look at various liability management activities, either in terms of outright reduction, or pay down of debt, or debt for equity type of opportunities that are accretive to our shareholders.
So, I think when you put all of that together, we continue to be pretty comfortable that we should be, within that range or approaching, you know, or going through the top end of that range over the course of next year.
Jim Crowe
Yeah. If you just take the average EBITDA, and assume that there is a slope, that is that the first quarter is less than the fourth quarter, you can see that why we have confidence, at 1.3, that is 5 times, it would be $6.5 billion in debt and we are at 6.8. So, if you simply assume there is a slope to the quarterly EBITDA performance, I think you can see why we would say what we've said.
Sunit Patel
And keep in mind our cash position is pretty healthy now. We don't have much in the way of cash flow losses. Actually as I say, we could pay down a few hundred million dollars of debt gets us there. So again, we remain very comfortable with that.
Jim Crowe
Okay.
Ana Goshko - Banc of America Securities
Okay, great. Thank you.
Jim Crowe
Next question?
Operator
Our next question...
Jim Crowe
Excuse me operator, I think we have time for two more questions. We've actually gone a bit over here today.
Operator
Okay, certainly our next question then is from Jonathan Schildkraut with Jefferies. Please go ahead.
Jonathan Schildkraut - Jefferies
Thank you very much. Most of my questions have been asked and answered. But, if you could spend a little bit of time on the transition of the CDN assets from Savvis to your sales, I'd appreciate it. On Savvis' call last night, they pointed to about $4 million from the CDN business.
I think that you said that you got about $3 million of revenue from that business during the quarter.
That seems to be a run rate that's higher than actually I would have expected, based on where that business was a year ago. I am wondering if already that business isn't just seeing some organic growth, just based on the overall demand for that type of service.
Jim Crowe
Let me make a couple of points. The whole CDN business today is between $500 million and $1 billion. If we expect that, that's what the business would be, we wouldn't be taking the actions we're taking. I think we would have lots of company when we say we expect explosive growth in the CDN business. That is point one.
Point two, we already have both new media and traditional media customers. We spend a lot of time with them, and in no small part our actions come from talking to them, and hearing what they believe are the services they want, and we think want from us.
Third point, when we acquired the Savvis assets, we said that the important matter was acquiring the intellectual property, associated with those assets. Let me be very clear.
Savvis and the successor companies to the Savvis CDN, hold and now we hold foundational patents.
Fundamental patents in Content Distribution, as we all know, and as I've repeated in this call, Intellectual Property is a battlefield, and we expect that that battlefield will widen, it is a key matter for any business that has intellectual property, they either want to defend, or be more offensive about, and we expect to be participating in both activities.
Savvis, the acquisition of Savvis was primarily aimed, at insuring we had the intellectual property to allow us to offer a set of services, not just this year, but in the coming years. Kevin said today we don't expect CDN to be a material contributor to revenue, this year.
But we expect it to be a very large contributor over the next few years. The amount we get currently from CDN, we view as immaterial, and you should expect that we want a much, much larger piece of the overall CDN market, which we expect to grow explosively.
Jonathan Schildkraut - Jefferies
Okay, thanks. Can I ask one more question about this? At the time that you looked at the CDN business, did you consider buying all of Savvis, considering their fiber backbone is two strands of Level 3 fiber?
Jim Crowe
I think we will dodge that question for what I hope are obvious reasons. I think we have time for one last question. Operator?
Operator
Thank you. The final question today will be from the line of Donna Jaegers with Janco Partners. Please go ahead.
Donna Jaegers - Janco Partners
Just under the wire. Thanks. One quick question, you guys reported about 31.8 million in IRU sales. Can you sort of clarify, are you selling dark fiber again, is this wavelengths, what sort of customer base are you selling it into?
Sunit Patel
Yeah, I think we had a very strong quarter with respect to IRU sales, which is why the deferred revenue balance went up, and as we indicated in the press release, in the government channels was one of them, the wireless channel was another. But I think in general, we're starting off the year pretty strong with fiber sales...
Kevin O'Hara
It is both fiber and transport services, both metro and little bits of inner city, but we are not, we're not big in pushing inner city dark fiber sales. They tend to be very, very opportunistic and very selective, but we are seeing pretty strong demand in the metro markets and inner city markets for transport services, so it wasn't one trend that dominated that 31. It was pretty robust demand across geographies and services.
Jim Crowe
All right, operator, that's the end of the call, and thank all of you for listening.
Operator
Thank you, ladies and gentlemen. Today's call will be available for replay beginning at 5:00 pm Eastern Time today, and running through 3rd of May at midnight. You may access to playback by dialing 320-365-3844 and entering the access code 869890. That number again is 320-365-3844 with the access code 869890.
That does conclude our conference for today. Thank you for your participation. You may now disconnect.
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