This deal makes sense to me – for the following reasons:
- It turns two low profile companies into the second-largest provider of communications to business in the US – after AT&T.
- CenturyLink picks up some $10 billion in tax credits. This would make Trump envious. Level3 is good at laying cable and operating networks, but has always been bad at business.
- Compatible trajectories. CenturyLink has been expanding from regional to metro and Level3 has been expanding from enterprise and backbone to smaller and medium businesses. The cost savings from estimated at a billion according to the outgoing Level3 CEO. Both companies were early to jump on the fiber bandwagon.
- Brings CenturyLink back to Colorado. I doubt they will move their headquarters from Monroe, LA – but Qwest was one Colorado’s few F500s until CenturyLink acquired it. Level3’s base of operations is Broomfield Colorado.
- If AT&T completes its Time Warner acquisition, then the US carrier space is up for grabs.
- Bundling: In addition to strong networking capabilities, CenturyLink has been quietly building an arsenal of higher level applications. It has a strong BroadSoft offering, a JITC certified implementation of multimedia communications that integrates voice, video, IM, presence, mobility, conferencing, and collaboration powered by Genband, SD-WAN offerings powered by Versa, and some 55 North American data centers (though some may be for sale). CenturyLink is also expanding into television services, and is testing an OTT service called Prism. It will likely make better use of Level3’s 200,000 miles of fiber. Level3 is also a major provider of Internet backbone services.
- Actually the television stuff is very interesting. We all know that TV is ripe for disruption and moving to Internet delivery (Netflix, Hulu, HBO). We also know that Apple can’t seem to get it right. Meanwhile ATT has DirectTV which is expanding from Satellite to Internet. CenturyLink ended Q2 with 311k Prism TV subscriptions – small but growing, and accomplished with relatively little advertising. I think the TV business could be good on its own, but Dean Douglas, President of Sales and Marketing, sees triple (or more) plays.
- CenturyLink has also ready for IoT and developed a complete portfolio that includes bandwidth, platforms, orchestration, storage, and analytics. Level3’s IoT offer is not as robust.
- It’s a win-win deal. Both companies need this. Both companies recently announced layoffs. CenturyLink needs to diversify from its consumer and legacy businesses representing 33% of its revenue – that includes 11 million fixed network voice accounts. Level3 has network services, but few compelling advanced services and a track record of losses.
The combined business will be based in Monroe, LA – but will retain a large presence in Denver. CenturyLink shareholders will own 51% of the company and Level3 shareholders the rest. No word yet what will become of the Level3 brand.
Prior notable acquisitions: CL: Qwest, Savvis, and Embarq and L3: TW Telecom, Global Crossing.