Level 3's Patel: Our merger with CenturyLink will enhance our SMB foothold

Sunit Patel, Level 3
Patel (Image: Level 3 Communications)

Level 3 Communications has become a well-known name in the larger enterprise space, but by becoming a part of CenturyLink next year, the service provider will have opportunities to more effectively battle cable operators in the small to medium-sized business (SMB) space.

Sunit Patel, CFO of Level 3, told investors at the Bank of America Merrill Lynch 2016 Leveraged Finance Conference that it could further its reach into small and medium businesses with a broader set of network and service capabilities from both service providers.  

“If you look at Level 3, our business historically has been stronger with larger enterprises and we don’t have as much scale with the lower end of enterprises,” Patel said. “I think CenturyLink’s business is pretty much across the enterprise sector so they have much more scale and critical mass in the smaller end of enterprises and also in the medium-sized enterprises.”

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For its part, Level 3 has seen some headwinds with its small business customer base, a trend that continued into the third quarter.

The service provider reported in its third quarter results that customers who spend between $2,000 and $20,000 per month declined 0.6% sequentially. Level 3 saw the largest declines with the smallest customers, who represented 5% of the company’s North America enterprise base and spend less than $2,000 per month. That group declined 18% sequentially.

At the time, Level 3 said that what impacted its smaller business customer base was moving 8,000 of those customers to inside sales. The service provider said it did not engage as well as it should have with its lower-end customer base.

A key part of the marriage with CenturyLink will be in its ability to serve businesses with a larger fiber network footprint. Upon completion, CenturyLink will gain an additional 200,000 route miles of fiber, including 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connecting multiple continents.

No less important is the on-net fiber footprint. The acquisition of Level 3 will increase CenturyLink's reach by nearly 75 percent to approximately 75,000, including 10,000 buildings in EMEA and Latin America.

Having a greater density of on-net fiber buildings means that CenturyLink could serve more SMBs present in those buildings or satellite offices of its larger business customers.

“In many cases our ability to serve those customers in more places with more products and services is a big, big plus,” Patel said. “Given the complementary nature of the customers and then you add to that the benefit of a much larger network footprint with a more comprehensive products and services portfolio we should be able to our market share with the enterprise market in general.”

At the same time, CenturyLink will be able to extend Level 3’s broader portfolio of cloud, Ethernet and security services to smaller and medium businesses that are currently served by the telco’s existing fiber facilities, including its growing GPON fiber-to-the-premises (FTTP) network. The GPON FTTP network was specifically designed to address residential and small business customers in its footprint.