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Level 3 to acquire TW Telecom to add scale to business-focused networks

The $5.7 billion deal is expected to close in four to six months, company officials said

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When Level 3 Communications completes its US$5.7 billion deal to acquire TW Telecom, the company will be a stronger competitor, focused on large business and government customers, executives from both companies said.

The deal, announced Monday morning, gives Level 3 -- a global voice, data, video and Internet backbone provider -- a larger metropolitan footprint in North America, where TW Telecom services are focused, said Jeff Storey, Level 3's CEO.

The two companies' networks have only about a 10 percent overlap, with fiber network footprints that generally don't serve the same buildings even when both companies have networks in the same metropolitan areas, Storey said during a conference call.

Level 3's customers will benefit from TW Telecom's "deep metropolitan footprint and buildings connected to the network," resulting in faster and more reliable fixed broadband connections in the U.S., the company said. TW Telecom's customers will be able to take advantage of Level 3's backbone networks and data centers in more than 60 countries as well as global subsea networks, it said.

"The combination strengthens our position as a global communications provider, and enhances our ability to gain market share," Storey said. "We found our customers increasingly have global communications needs, whether it's to connect to their employees around the world, connect to their suppliers or connect to their customers."

The deal, expected to close in four to six months, also will allow the combined company to compete in a consolidating telecom industry, officials from both companies said. In February, Comcast announced plans to buy fellow cable and broadband provider Time Warner Cable, once TW Telecom's parent company, in a deal worth $45.2 billion.

Storey noted that cable broadband providers are among Level 3's main competitors.

"We're in a scale business," Storey said. "We know that our primary competitors are very large companies, whether they're incumbent telecos or cable companies. We pay attention to the competitive landscape."

TW Telecom's board embraced the acquisition because "the world is changing," said Larissa Herda, the company's CEO. "Enterprises have rapidly changing network needs, and as a result, the telecom industry is changing as well."

Changes in the telecom industry are "creating a wave of opportunity that's happening right now," she added. The deal will help the combined company expand, offer more services, and compete with larger telecom carriers, she said.

The combined company's customer base would be about 70 percent enterprise businesses, Level 3 said.

Level 3 expects about $2.2 billion in savings through synergies resulting from the acquisition. The combined company will have $7.9 billion in annual revenue, compared to $6.3 billion for Level 3.

The deal is subject to approval by the U.S. Federal Communications Commission, the U.S. Department of Justice and state regulators.

Level 3 CFO Sunit Patel said he doesn't expect any regulatory hiccups. "This should be reasonably straightforward, compared to other transactions that the regulatory authorities might be looking at, at this point in time," he said.

(Mikael Ricknäs in London contributed to this report.)

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.



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