Level 3's Patel says Verizon-XO deal means less competition in 10G, 100G markets

Level 3 Communications isn't afraid of the rapidly consolidating fiber service market and the company sees Verizon's (NYSE: VZ) recent purchase of XO's fiber network as a potential opportunity to compete for business with other enterprises and carriers.

Speaking to investors during the recent Morgan Stanley Technology, Media & Telecom Conference, Sunit Patel, CFO and acting CEO, said that the acquisition takes out a competitor.

"In general, Verizon buying XO is a good thing for us," Patel said. "It's less competition and it's less competition in some of the in the 10G and 100G wavelengths markets."

Similar to Zayo, Verizon and XO are big customers of Level 3 for metro and long-haul dark fiber. XO may have a 33,000 km network, but over 16,000 km of  is supplied by Level 3 via a long-term indefeasible rights of use (IRU) lease.

As parts of XO's IRU with Level 3 will expire in the next few years, some analysts believe that Verizon could work with Level 3 to construct a new IRU or an expansion for other routes.

"When we look at our revenue with both customers, we don't think it impacts us much at all," Patel said. "When we look at what they're buying, XO was wanted long haul and it is dark fiber so we don't see any change there."

At the same time, Level 3 recognizes that cable operators like Comcast (NASDAQ: CMCSA) are trying to move up market to serve larger businesses. Initially, cable had found success in serving the small to medium business (SMB) market.

Comcast in particular has also been growing in areas like Ethernet. The cable MSO, which just a few years ago had no Ethernet presence, now holds a sixth place ranking on Vertical System Group's U.S. Ethernet Leaderboard, trailing Time Warner Cable (NYSE: TWC), which will enhance its Ethernet holdings after being acquired by Charter Communications.

While Patel acknowledged that cable could be an eventual bigger threat in the enterprise deals it is chasing, Level 3 mainly competes with larger traditional incumbent telcos like AT&T, Verizon (NYSE: VZ) and Orange Business Services and "generally it's not the cable companies."

"When you actually step back and look at the breadth and depth of our network both from a metropolitan, international and subsea, there's no comparison to the large enterprises we serve," Patel said. "Having said that it's certainly clear whether it's Comcast, Cox or Time Warner Cable, they are serving larger enterprises that have multiple employees in multiple offices in the same city means they could be a strong competitor."

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