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Level 3 to Acquire tw telecom; Bets Big on Metro Fiber Assets to Capture Enterprise Market

  • June 2014
  • 8 pages
  • Frost & Sullivan
Report ID: 2212028

Summary

Table of Contents

With the tw telecom acquisition, Level 3’s competitive positioning in the high-growth, enterprise-focused Ethernet services market leaps to third place, behind only AT&T and Verizon—impressive growth for a company that forayed into the enterprise market barely eight years ago. In this paper, we provide Frost & Sullivan’s analysis on the implications of this merger to the companies and the market.

Introduction

On June 16, 2014, Level 3 Communications announced its decision to acquire tw telecom. The deal, assuming it clears regulatory approval by the FCC, will be valued at $ billion in cash and stock. Level 3 expects annualized savings of approximately $ million from synergies derived from the acquisition, with $ million from annualized capital expenditure savings and $ million of EBITDA savings.

tw telecom is a leading competitive local exchange carrier (CLEC) that has been growing rapidly in the enterprise market due to its fiber-based Ethernet strategy. Level 3, also a CLEC, has actively expanded its capabilities to directly serve enterprises over the last decade. Following its acquisition of WilTel in the fourth quarter of 2005, Level 3 acquired five different companies in 2006: Progress Telecom, ICG, TelCove, Looking Glass, and Broadwing. Each of these five acquisitions brought a unique set of metro fiber assets and business customers to Level 3. In 2011, Level 3 acquired Global Crossing, which expanded the company’s Ethernet capabilities in North America, Latin America, and in Europe. This acquisition transformed Level 3 into a truly global communication services company that caters to the enterprise, government, content provider and wholesale carrier segments.

With the tw telecom acquisition, Level 3’s competitive positioning in the high-growth, enterprise-focused Ethernet services market leaps to third place, behind only AT&T and Verizon—impressive growth for a company that forayed into the enterprise market barely eight years ago. In this paper, we provide Frost & Sullivan’s analysis on the implications of this merger to the companies and the market.
What Does This Acquisition Mean To Level 3?

The acquisition primarily benefits Level 3’s enterprise market presence, particularly its MPLS VPN and Carrier Ethernet services portfolio, while adding geographic reach and wholesale capabilities to tw telecom. Figure 1 below shows the comparison of Level 3 and tw telecom across various metrics.

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