Welcome!

News Feed Item

ATLANTIC-ACM Releases Level 3 – tw telecom Deal Analysis

ATLANTIC-ACM today released the following analysis of the Level 3 – tw telecom deal. Members of the press are free to quote with attribution.

*****

Level 3 – tw telecom Deal to Create New “Major Player” in Business Telecom

By Charlie Reed, Director of Quantitative Analytics, ATLANTIC-ACM

Background:

Level 3 announced the planned acquisition of tw telecom for approximately $5.68B in a cash and stock transaction.

Analysis:

If consummated, the deal will have the following impacts on the market:

  • The deal will help both companies compete. tw telecom will add valuable local assets to Level 3’s robust long-haul network, increasing its lit building count by 21,000 on-net units (for a total of 35,000). tw telecom’s dense metro footprint has allowed it to play well with mid-sized local and regional businesses, including entities in the large medical, local government and education segments. (These three verticals account for 29 percent of employees in the U.S. and represent a large opportunity to capture share from the ILECs.) The deal also will help Level 3 compete for contracts from large enterprises as its increased on-net reach delivers new advantages in costs, provisioning and service levels. Those types of advantages, and decades of focus, have allowed AT&T and Verizon to capture significant shares of contracts with large enterprises. (Level 3 has had recent success in capturing large contracts already, and this deal will enable it to compete more deeply for these deals.) On the other side of the transaction, tw telecom will similarly benefit from Level 3’s global footprint, opening up opportunities with customers that have international requirements. Finally, the deal will help Level 3 in the wholesale space, delivering strong metro density that will help the new company capture greater share of the wireless backhaul market.
  • Will integration challenges interfere with the momentum of these players? tw telecom has one of the most consistent networks, visions and strategies in the industry, which has enabled revenue growth every quarter for the past nine years in a flat market for business telecom services. Level 3 has experienced significant growth as well—especially over the past several quarters, logging growth in the North American enterprise financial line item of 3%, 5% and 4% percent quarterly in 3Q13, 4Q13 and 1Q14, respectively. ATLANTIC-ACM estimates the combined Level 3 and tw telecom have grown U.S. business telecom service revenue (excluding data center, cloud equipment and professional services) by 8% from 2012 to 2013 while the overall market remained flat. Integration will create challenges for the new company to maintain this trend. To this point, tw telecom’s growth has been greatly assisted by its excellent business customer service. In ATLANTIC-ACM’s 2013 Business Connectivity Report Card, tw telecom was the highest scoring carrier among companies generating $1B+ in revenue for Sales Reps, Billing, Customer Service, Voice Value and Data Value. Level 3 also scores well with customers, receiving Brand and Network awards in 2013. (Note: 2014 results will be announced next week – stay tuned for updates.) The operational organizations and cultures that enable this level of customer focus will be difficult to maintain through integration and probable layoffs. This said, Level 3 was successful overall with its integration of Global Crossing and has at its disposal the expertise of CEO Jeff Storey, whose deep background in operations will serve it well as the new company tackles these challenges.
  • A new major player. Despite the high profile of this merger, and the new company leapfrogging Windstream to take position as the Number Four player in business services, the combined firms will have a small share (5.2% in 2013) of the overall business services market. (Note that the Comcast/TWC deal, if approved, will have a larger share than Level3/twtc.) AT&T, Verizon and CenturyLink possess a combined share of 59.8%. However, when drilling specifically into more advance services, including Ethernet, VoIP, IP VPN and Dedicated Internet Access (DIA), the combined companies’ share in 2013 would have been 8.9% -- the third largest behind AT&T and Verizon. On the wholesale side, the combined company’s share in 2013 would have been 7.2% -- again placing fourth behind AT&T, Verizon and CenturyLink.

The Bottom Line:

Since these companies do not overlap in network and focus on slightly different customer sets, the merger is not likely to decrease competition. If fact, Level 3 has historically priced very competitively and may bring that perspective to tw telecom markets, driving increased competition. In addition, the combined company will likely make stronger plays in bids for large contracts, placing competitive pressure on AT&T, Verizon and CenturyLink.

At the same time, the acquisition will deliver a significant last-mile access footprint to an operator that historically has lacked a scaled metro footprint, driving OPEX synergies via on-net circuits while also enabling Level 3 to deeply penetrate U.S. metro markets in pursuit of greater business services expansion. In today’s market, the telecom business is a game of scale, and this deal delivers Level 3 the required metro network scale to broadly support U.S. business customer needs, which translates to opportunities to capture greater share of business telecom services revenue.

*****

About ATLANTIC-ACM

ATLANTIC-ACM is a leading provider of strategic research and consulting services to the communications and information industries. In addition to producing the industry's principal customer satisfaction, benchmarking, and market sizing and opportunity studies, ATLANTIC-ACM assists clients in evaluating business development opportunities for successful investment, market entry and long-term planning. For more than two decades, ATLANTIC-ACM has helped leading companies identify opportunities, capture and retain market share, and navigate changing markets, economies and technologies. For more information, visit ATLANTIC-ACM's website at http://www.atlantic-acm.com.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
TechTarget storage websites are the best online information resource for news, tips and expert advice for the storage, backup and disaster recovery markets. By creating abundant, high-quality editorial content across more than 140 highly targeted technology-specific websites, TechTarget attracts and nurtures communities of technology buyers researching their companies' information technology needs. By understanding these buyers' content consumption behaviors, TechTarget creates the purchase inte...
In the enterprise today, connected IoT devices are everywhere – both inside and outside corporate environments. The need to identify, manage, control and secure a quickly growing web of connections and outside devices is making the already challenging task of security even more important, and onerous. In his session at @ThingsExpo, Rich Boyer, CISO and Chief Architect for Security at NTT i3, will discuss new ways of thinking and the approaches needed to address the emerging challenges of securit...
As cloud adoption continues to transform business, today's global enterprises are challenged with managing a growing amount of information living outside of the data center. The rapid adoption of IoT and increasingly mobile workforce are exacerbating the problem. Ensuring secure data sharing and efficient backup poses capacity and bandwidth considerations as well as policy and regulatory compliance issues.
Many private cloud projects were built to deliver self-service access to development and test resources. While those clouds delivered faster access to resources, they lacked visibility, control and security needed for production deployments. In their session at 18th Cloud Expo, Steve Anderson, Product Manager at BMC Software, and Rick Lefort, Principal Technical Marketing Consultant at BMC Software, discussed how a cloud designed for production operations not only helps accelerate developer inno...
Almost two-thirds of companies either have or soon will have IoT as the backbone of their business. Though, IoT is far more complex than most firms expected with a majority of IoT projects having failed. How can you not get trapped in the pitfalls? In his session at @ThingsExpo, Tony Shan, Chief IoTologist at Wipro, will introduce a holistic method of IoTification, which is the process of IoTifying the existing technology portfolios and business models to adopt and leverage IoT. He will delve in...
"We host and fully manage cloud data services, whether we store, the data, move the data, or run analytics on the data," stated Kamal Shannak, Senior Development Manager, Cloud Data Services, IBM, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
SYS-CON Events announced today that Conference Guru has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. A valuable conference experience generates new contacts, sales leads, potential strategic partners and potential investors; helps gather competitive intelligence and even provides inspiration for new products and services. Conference Guru works with conference organizers to pass great dea...
SYS-CON Events announced today that LeaseWeb USA, a cloud Infrastructure-as-a-Service (IaaS) provider, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. LeaseWeb is one of the world's largest hosting brands. The company helps customers define, develop and deploy IT infrastructure tailored to their exact business needs, by combining various kinds cloud solutions.
"When you think about the data center today, there's constant evolution, The evolution of the data center and the needs of the consumer of technology change, and they change constantly," stated Matt Kalmenson, VP of Sales, Service and Cloud Providers at Veeam Software, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, discussed the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
Zerto exhibited at SYS-CON's 18th International Cloud Expo®, which took place at the Javits Center in New York City, NY, in June 2016. Zerto is committed to keeping enterprise and cloud IT running 24/7 by providing innovative, simple, reliable and scalable business continuity software solutions. Through the Zerto Cloud Continuity Platform™, organizations can seamlessly move and protect virtualized workloads between public, private and hybrid clouds. The company’s flagship product, Zerto Virtual...
WebRTC defines no default signaling protocol, causing fragmentation between WebRTC silos. SIP and XMPP provide possibilities, but come with considerable complexity and are not designed for use in a web environment. In his session at @ThingsExpo, Matthew Hodgson, technical co-founder of the Matrix.org, discussed how Matrix is a new non-profit Open Source Project that defines both a new HTTP-based standard for VoIP & IM signaling and provides reference implementations.
The Internet of Things is clearly many things: data collection and analytics, wearables, Smart Grids and Smart Cities, the Industrial Internet, and more. Cool platforms like Arduino, Raspberry Pi, Intel's Galileo and Edison, and a diverse world of sensors are making the IoT a great toy box for developers in all these areas. In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists discussed what things are the most important, which will have the most profound e...
We all know that data growth is exploding and storage budgets are shrinking. Instead of showing you charts on about how much data there is, in his General Session at 17th Cloud Expo, Scott Cleland, Senior Director of Product Marketing at HGST, showed how to capture all of your data in one place. After you have your data under control, you can then analyze it in one place, saving time and resources.
Cognitive Computing is becoming the foundation for a new generation of solutions that have the potential to transform business. Unlike traditional approaches to building solutions, a cognitive computing approach allows the data to help determine the way applications are designed. This contrasts with conventional software development that begins with defining logic based on the current way a business operates. In her session at 18th Cloud Expo, Judith S. Hurwitz, President and CEO of Hurwitz & ...