Three months ago, Level 3 Communications (Nasdaq: LVLT) reported a decent first quarter. At the time, I told you to keep a lid on your enthusiasm for the stock because there were plenty of red flags hiding under the shiny veneer.

Today, Level 3's shares plunged 11% on disappointing second-quarter results. The stock has lost 29% of its value since that dire warning in early May. It's not always fun to be right.

Total revenue of $1.6 billion was just $1 million above the year-ago period. Level 3 managed to cut its bottom-line losses from $0.97 per share to $0.29 per share, but analysts were looking for an even smaller bucket of red ink.

The flat sales included 5% higher American revenues but also significant weakness in Europe and Latin America. In particular, orders from the U.K. government dwindled by 26% year over year.

But the worst warning sign on display here is the weak grip Level 3 has on its cash flows. In the second quarter, the company generated just $3 million of free cash flows, down from $19 million a year earlier. Neither figure is particularly impressive for a business with billion-dollar revenues, and it's a long-term trend that isn't going away:

LVLT Free Cash Flow TTM Chart

LVLT Free Cash Flow TTM data by YCharts

Mind you, that chart starts after the 2008 financial crisis. You'd expect a healthy service business to grow healthier as consumer, government, and enterprise spending ramp up in the aftermath of that crash, but Level 3 is doing the exact opposite. I still don't see any sign that management is up to the turnaround task at hand.

And for all of this execution risk, you don't even get a dividend bonus. AT&T (NYSE: T) and Verizon (NYSE: VZ) both combine Level 3-style networking scale with financial stability and decent dividend payouts. Or you can rely on CenturyLink (NYSE: CTL) and Windstream (Nasdaq: WIN) to pair even fatter yields with some growth potential.

Either way, I can't think of an investment thesis that would lead me to Level 3 today when there are so many better choices on the market. My bearish CAPScall on Level 3 soared today, and I expect more of the same in coming quarters.

To get started on a better telecom portfolio, learn more about AT&T's rock-solid cash flows and dividends in this free report, but hurry while it's still gratis.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.