Level 3 Communications (Nasdaq: LVLT), one of the aggressive service provider consolidators, last Monday made a move to acquire Global Crossing (Nasdaq: GLBC). While the company still has yet to reveal its integration plan and the management team, the deal has a number of upsides in that it instantly expands Level 3's geographic reach into emerging hot markets like Latin America. It also bolsters the provider's enterprise services strategy with new global VPN and collaboration applications it can sell multinational corporations (MNCs) and multi-geography businesses.
FierceTelecom Senior Editor Sean Buckley caught up with Jeff Storey, President and COO of Level 3, to discuss the impact of the company's pending acquisition of Global Crossing.
FierceTelecom: Jeff, you just announced that you're going to purchase Global Crossing. What are the motivations and benefits you get from this deal?
Storey: The first thing is we create a company with a comprehensive voice, video and data service with a very large addressable market. Secondly, this deal is accretive to Level 3 on a free cash flow per share basis in 2013 and improves our balance sheet and our credit profile going forward.
FT: With this deal, Level 3's revenue stream shifts to 56 percent enterprise and 44 percent wholesale. How does the acquisition fit into your ongoing enterprise services drive?
JS: Level 3 has been moving for the past couple of years into serving more and enterprise needs and providing products and services that we combine and solutions for our enterprise customers. This is a natural continuation of that. We believe that there are a number of products and services in both companies and the geographic reach that both companies bring to where we can bring to multinational customers and other multi-geography enterprise customers a host of services across a wide geography.
FT: You mentioned geographic reach. One of the geographic areas that the Global Crossing deal gives you is instant access to the Latin American telecom market. Prior to announcing the acquisition, were you seeing more demand for Latin American services? How does this deal fit into your strategy?
JS: Yes, demand for traffic in Latin America is high. We've seen demand growth actually across all of our geographies and (the Latin American market is) growing very fast. As you look at our content delivery network (CDN) business, we have existing customers who are growing demand in North America and Europe, but they also approach us about traffic they'd like to hand off into Latin America. This deal furthers our ability to meet the demand our existing customer's growing demand and also new customers.
FT: Along with Latin America, you will also enhance your Asia-Pacific reach. What's your outlook on that market?
JS: We expect to leverage the assets of both companies and our partners to continue to grow traffic wherever our customers want to originate it or to terminate it. Asia is part of our long-term strategy, as is Latin America, as is Europe, as is North America so we'll continue to build or partner as appropriate.
FT: Given Level 3's dense North American metro fiber footprint, Level 3 will be able to sell Global Crossing's wide ranging enterprise services suite, including international VPN over those network assets. Do you see that as a key asset to differentiate yourself in the competitive business services space?
JS: Level 3 has a very rich set of metro assets connecting large enterprises and buildings all over the country. We expect to be able to leverage that infrastructure and layer on products and services from Global Crossing's product portfolio for MNCs and multi geography customers and use that infrastructure to support growth.
FT: In addition to enterprise services, you'll gain Global Crossing's CDN capabilities. Do you see their CDN capabilities as a complement to your well-established Vyvx offering?
JS: Yes, it gives us a broader network over which to distribute content.
FT: Integration of assets and cultures is obviously going to be major task for Level 3. Do you have a plan in place yet or will it be an evolutionary process?
JS: We expect the acquisition, depending on approvals, to take somewhere between five and seven months. Over the course of that time, we'll work on a detailed integration plan. We will bring in a team of people from both companies together and develop a detailed integration plan. We have a high level integration plan at this point, but over the next five to seven months is when we'll really develop it and then begin implementing it after the close.
FT: There's been a lot of consolidation in the service provider market with your deal with Global Crossing and CenturyLink's (NYSE: CTL) recently completed merger with Qwest. Do you see more consolidation of the service provider market coming, and what are the benefits to Level 3?
Storey: There's been considerable consolidation in the service provider market in the past few years. Level 3 has been an acquirer in a number of situations and we typically look for acquisitions that bring us scope, scale, and breadth of products. The acquisition of Global Crossing gives us all three: It gives us the scope of network reach in areas that we don't have; it gives us new and exciting products that we can sell over both networks and deliver to customers; and it gives us attractive synergies and cost savings.