CenturyLink’s pending acquisition of Level 3 will give the service provider a greater density of on-net fiber locations, enabling the combined company to control the service experience for its business customers.
Upon completing the acquisition, CenturyLink will become the second largest business service provider in the United States, trailing only AT&T.
By acquiring Level 3, CenturyLink will immediately enhance its fiber assets. Level 3 has 64,000 route metro fiber miles and over 42,000 on-net buildings connected to its fiber network. It also has metro assets reaching more than 500 markets in more than 60 countries.
As a result, Level 3 will enable CenturyLink to improve its scale in the enterprise market. Today, business services are 59% of the telco’s revenues, while 100% of Level 3’s revenues are business and wholesale with 70% focused on enterprise customers.
Stewart Ewing, CFO of CenturyLink, and Jeff Storey, CEO of Level 3, told investors during a joint session at the Citi 2017 Internet, Media &Telecommunications Conference that the combination of the two service providers gain greater cost efficiencies by bringing their customers onto their own network.
Specifically, as one company CenturyLink would be able to cut off-net circuit costs it pays to other ILECs and CLECs where it currently does not have fiber build out today.
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Storey said that by brining customers on-net, the combined CenturyLink and Level 3 not only saves costs, but also can pursue new growth opportunities with its business customers.
“If we look at the network synergies, and part of the $975 million, is moving off-net expenses to on-net,” Storey said. “While that actually involves capital to do that it’s another growth initiative because it saves our money and improves our gross margins, but it also gives a better experience to our customers.”
Ewing agreed, adding that about 40% of the operating expense savings are on the network side.
“A big part of that expense is getting customers off third-party networks and getting customers on our network so you can provide a better customer experience,” Ewing said. “It costs us less because the network is there and it’s ours and it takes revenue away from a competitor.”
One model that CenturyLink hopes to follow in converting customers to on-net circuits is how Level 3 conducted that process when it acquired tw telecom.
“I was really impressed with the way Level 3 was able to manage the process of migrating tw telecom’s customers from off-net circuits to its own network,” Ewing said.