**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in Q1 2014.**
Agents’ reactions to Level 3 Communications’ purchase of tw telecom inc. are running the gamut from “This is terrible news,” and “Negative,” to “Meh,” “I like this combination,” and “It will be a good marriage.”
The mixed responses come as the entire communications sector consolidates, cutting down on the number of suppliers partners may sell. So far this year, in just network services, Comcast has announced plans to buy Time Warner Cable, AT&T is snapping up DirecTV and Sprint is gobbling up T-Mobile USA. Now, Level 3 and tw telecom join the fray. Together, the providers will create one of the industry’s largest cloud enablers and own a wealth of lit fiber, targeting enterprises, government agencies and other carriers.
To that end, some agents welcome the merger, one gave it a “Meh,” and others are not happy about it.
Vince Bradley, CEO of WTG, is one of those who likes the proposed combination. He’s the one who called the transaction “a good marriage.”
“Level 3 focuses on data with SIP and [has] a big international play since the Global Crossing merger,” he explained. “tw telecom has domestic data and a nice voice product set.”
Chris Palermo, president and CEO of Global Communications Networks Inc. (GCN), agreed.
“I like this combination,” he said. “tw telecom has a huge footprint not only for on-net locations but for small colos. Level 3 can capitalize on this. tw telecom, much like the cablecos, has trouble selling a burstable service. Level 3 does not have this problem and, hopefully, this merger will allow bursting to existing tw telecom customers over time.”
But other agents are expressing fears about a Level 3-tw telecom tie-up.
For one thing, partners and their customers will have even fewer vendor choices, said Nancy Ridge, vice president of Telecom Brokers.
For another, she added, “Level 3 does not have a good track record of integrating new acquisitions from either a network or back-office perspective. Managing another acquisition will negatively impact profit, as time will have to be spent addressing all the changes that will come with it.”
Another agent, who spoke on condition of anonymity, called the merger “terrible news.”
“tw telecom is an amazing provider with excellent partner and customer experience,” the agent said. “They truly excel at being a service provider. I would say, based on recent experience, Level 3 is exactly the opposite. Plus less competition is never good. I would anticipate that once the merger is complete and the networks/support are combined, we will sell less of tw telecom’s assets. Or maybe by then Level 3 will improve. Who knows? Currently, tw telecom is a smaller niche provider with an excellent go-to-market strategy and execution. I fear this will all change.”
The agents who say they’re pleased with the Level 3-tw telecom deal offered up some counterpoints to their peers’ concerns.
For example, GCN’s Palermo predicted that Level 3 may tackle its provisioning problems by letting tw telecom take the lead.
“Quite possibly, Level 3 will allow tw telecom to add some input on how to effectively turn up circuits in a timely and accurate manner, since tw telecom is one of the better carriers that we work with for implementation and Level 3 is at the lower end of this spectrum,” he said.
Bradley, meanwhile, pointed to Level 3’s many acquisitions over the years as proof that the carrier will handle integration with ease.
“Level 3 is quite used to M&A activity and thus been down this road before,” he said. “tw telecom is an extremely sharp, well-run carrier and will do a good job through the process. No merger is easy, but this one will go more smoothly than most.”
Still, for Telecom Brokers’ Ridge, there’s reason to pull away from Level 3.
“We have already reduced our Level 3 sales because of their announcement … to reduce commissions on renewals following ongoing problems with provisioning, service and account management,” she said. “We will be less likely to promote tw telecom now.”
Bradley doesn’t see WTG following suit.
“We do a lot of business with both of them and don’t foresee that changing dramatically,” he said.
Palermo, however, said there will be churn where GCN has sold Level 3 and tw telecom to the same customer to create a primary/redundant connection.
“Once the networks are combined, we will need to take out one of the carriers and replace them with a true redundant provider.”
Level 3 is paying $5.7 billion, plus assuming $1.6 billion of debt, for tw telecom. That amounts to a little less than $41 per share for stockholders. Level 3 expects the deal to close in the fourth quarter of this year.
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