CenturyLink’s Level 3 acquisition faces challenges from California consumer advocacy groups

A map of CenturyLink and Level 3's network
Wholesale services are just one part of the equation of concern the two groups want the CPUC to address in considering the acquisition.

CenturyLink’s proposed acquisition of Level 3 is now facing protests from two California-based consumer advocacy groups who say the combined company will place too much control of a large portion of the state’s wholesale and retail fiber into one company.

This is a small blow to CenturyLink, which has remained confident that it would not have as difficult a time getting state approvals because the telco is purchasing a company that does not serve consumers. Level 3 is mainly focused on selling a mix of wholesale services like fiber to other carriers and selling IP-based and TDM services to business customers.  

These groups include a coalition of consumer advocacy groups—TURN, The Greenlining Institute and the California Public Utilities Commission’s (CPUC) office of ratepayer advocates—and the California Emerging Technology Fund (CETF).

RELATED: CenturyLink’s revenue dips to $4.21B as it forecasts lower Q2 broadband, video subscribers

The coalition has asked the CPUC to get a better hold on how the acquisition will affect how wireless operators and other service providers can get competitively priced wholesale services.

“The Commission should review the Proposed Transaction and consider its effects on safety, reliability, network infrastructure, investment and competition,” said the coalition in a filing with the CPUC. “This transaction will have a direct and significant impact on the availability of backhaul and other wholesale services that are critically important to ensuring a robust marketplace for broadband services as well as many other offerings that ultimately impact all California consumers.”

CETF agrees with TURN and recent protests from Frontier and Windstream that accuse Level 3 of unfair billing practices that could affect rural broadband deployment. Level 3 is a major middle mile provider to a number of service providers in California.

“Like Windstream, CETF is concerned that if the transaction is approved, Level 3 could wield its increased market power to continue to systematically increase prices to ISPs, which ultimately may increase rates charged to retail consumers,” CETF said in a filing (PDF). "This may further exacerbate the Digital Divide suffered by low-income persons and underserved communities.”

Expanding broadband

Wholesale services are just one part of the equation of concern the two groups want the CPUC to address in considering the acquisition.

CETF says that the CUPC and other regulators need to take a closer look at the deal’s effect on telecom competition in California, particularly on what benefits it can bring to expand broadband availability in the state.

In particular, the organization said that the CPUC should make CenturyLink commit to expanding California’s broadband infrastructure.

“CETF finds the current Application sorely lacking in that there is not a single concrete public interest commitment for broadband set forth in the Application. In April 2017, the Commission released its 2016 Annual Report on the California Advanced Services Fund (CASF Annual Report), a Commission program to fund, among other things, broadband infrastructure grants to areas with no broadband or broadband under the speed of 6 megabits per second (Mbps) down and 1.5 Mbps up ('served speeds').” 

CASF set a goal to achieve funding for infrastructure projects that will provide broadband access to no less than 98% of California households by the end of 2015. However, the organization’s annual report illustrated that only six California counties have met the 98% standard, while the other 52 primarily rural counties fall below the 98% statewide goal.

In order to drive further broadband expansion, CETF said that the CPUC could require CenturyLink to make voluntary broadband expansion commitments.

The organization cited how the commission ordered Verizon and Frontier to obtain CAF-II and Remote Area Fund support from the FCC. By using those programs, CETF said, “Frontier was directed to spend such FCC funding first on the most remote and underserved portions of the Verizon California service area where connections to school and other anchor institutions may be deficient and where energy facilities and pole structures may be absent.”

Likewise, as part of its agreement to acquire Time Warner Cable and Bright House Communications, Charter Communications executed Memoranda of Understandings with various consumer and public interest groups and made numerous voluntary public interest commitments, including to broadband to 70,000 locations in six rural counties within three years. The cable MSO also pledged to increase broadband speeds to all California households over three years and bring all households in California to an all-digital platform with increased download speeds over three years.

CenturyLink remains confident

Despite these latest protests, CenturyLink appears to remain confident that it will be able to get the necessary state approvals and complete the acquisition by September.

As of the end of the first quarter, CenturyLink had gained 14 state PUC approvals and that it was continuing to move through the process.

Glen F. Post
Glen Post

“There is always going to be an outlier and you just can't control the regulatory process,” said Glen Post, CEO of CenturyLink during the earnings call, according to a Seeking Alpha transcript. “But right now, we don't see anything that could—anything that we believe will stop us from closing by the end of September.”

Post added that “this is not impacting the consumer business, so we should have less concern from the state regulators than you would in a normal, we-would-be-buying-a-consumer-asset sort of business.”