On the heels of the blockbuster Qwest-CenturyTel merger announced last month, the telecommunications industry may be poised for further consolidation.
The next wave could stretch beyond traditional phone companies to fiber-optic-network operators such as Broomfield’s Level 3 Communications, slated to become the largest Colorado-based telco with Qwest’s pending departure.
“We believe that further consolidation is probable, and we plan to be an active participant,” Level 3 vice chairman Buddy Miller said last week. “To put it simply, we believe that a dollar of revenue added to our network from a merger is worth more than on the other company’s stand-alone network.”
Level 3’s network carries Internet traffic for a wide range of businesses, including Google, MySpace and nine of the top 10 U.S. cable companies.
Miller wouldn’t comment on timing or “any particular target.”
Denver telecom analyst Donna Jaegers said Level 3’s huge debt load makes it unlikely that the company would be acquired. Instead, it could merge with a competitor or peer that isn’t as highly leveraged in a stock swap.
“I’m thinking Global Crossing is a good candidate,” Jaegers said. “Anybody who has less leverage than Level 3 would actually help them delever the balance sheet.”
Level 3 has $6.5 billion in debt, while Flor ham Park, N.J.-based Global Crossing has $1.3 billion.
Global Crossing chief executive John Legere said recently that 2010 is a “big year” for the company.
“We plan on the industry consolidation taking place, and we will be either an acquirer or a participant,” Legere told the Star-Ledger newspaper in New Jersey.
Global Crossing spokesman Michael Schnei der declined to comment.
Network operators went through a bevy of mergers and acquisitions several years ago.
Littleton-based TW Telecom, which provides “last mile” connections into cities and individual buildings, bought another metro fiber firm, Xspedius, in 2006 for $580 million. Global Crossing spent more than $400 million on two acquisitions in 2006 and 2007.
Level 3 has been the most active of all, spending roughly $4 billion on eight acquisitions from late 2005 to mid-2007. Smaller operators Broadwing and Wiltel Communications were among the purchases.
Herndon, Va.-based XO Communications is another independent network operator that could be rolled up. The latest M&A discussions among operators may have been stirred by Qwest a year ago.
“Last year, when Qwest was trying to market their long-haul system, that got a lot of people thinking about the synergies that were possible,” Jaegers said. “So people have been sort of talking for the last year about different combinations as far as companies talking between themselves.”
Andy Vuong: 303-954-1209, [email protected] or twitter.com/andyvuong
