Level 3, Global Crossing Reject XOs Claims in FCC Merger Review

Level 3 Communications and Global Crossing have rejected claims by XO Communications that the two companies will dominate the Internet backbone market if U.S. regulators allow them to merge.

The Internet Connectivity market has changed dramatically over the last 10 years and Tier 1 Internet Backbone Providers (IBPs”) like Level 3 and GLC no longer play the primary role in connectivity that they did in the late 1990s and early 2000s,” Global Crossing and Level 3 told the Federal Communications Commission in a filing last week. This is confirmed by the dramatic drop in transit prices since 1998 from around $1,200 per Mbps per month when WorldCom acquired MCI in 1998 to $25 when AT&T acquired BellSouth in 2007.”

Level 3 and Global Crossing asserted the new pricing reflects a shift away from a market in which consumers bought transit from just a small number of IBPs to one in which providers have a myriad of alternatives, including settlement-free peering, paid peering, direct peering, Internet Exchange Points (IXPs”), content delivery networks (CNDs”), and transit.”

The Proposed Transaction will not reverse the trend of the last decade towards lower transit prices,” the companies noted in the FCC filing.

XO has requested an extension of time until Aug. 4 to reply to its competitors’ remarks.

Earlier this month, XO claimed that Level 3s acquisition of Global Crossing would create a global colossus” in the Internet backbone market. In a declaration filed with the FCC, XOs Chief Technology Officer, Randolph Nicklas, asserted the merger would give Level 3 an incentive to cease Internet peering arrangements with other Tier 1 network providers and instead demand payment to exchange traffic.

The FCC must find the merger is in the public interest in order to approve the transaction, and XO has asked the agency to reach the opposite conclusion.

Global Crossing and Level 3 have declared that the merger is in the public interest, and the communications providers have asked the FCC to approve the $3 billion deal without imposing any conditions on the transaction.

The merger would create a company with ownership over networks in more than 50 countries and connections to more than 70 countries.

The companies expect the deal to close before the end of the year following customary closing conditions and regulatory approvals, including clearance from the FCC and U.S. Department of Justice.

In the FCC filing on July 21, Level 3 and Global Crossing also responded to comments filed by Pac-West Telecomm that the FCC should impose specific conditions on the merger.

Generally speaking, Pac-West has alleged that Level 3 doesnt pay it for services it provides in connection with a toll-free call. But Level 3 and Global Crossing maintain the FCC is addressing the issue in a separate proceeding and shouldnt tackle the matter in the merger review.   

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