14 thoughts on “Backbone Consolidation Continues – Level 3 buys Broadwing”

  1. Om, it is very easy to comment and blog about past events. So easy that anyone can do it (and they do).

    What distinguishes serious journalists is the ability to ferret out sources and make credible predictions that later turn out to be correct… so please, get busy and figure out what the next acquisition is going to be. Covad?

  2. PAETEC/US LEC? Cogent? Oh, please…

    PAETEC is strong in the Northeast and US LEC is strong in the Southeast, but both companies have very little in the central or western US…even after merging they will still be largely a regional player with only a limited presence outside the East.

    Cogent doesn’t own much in the way of intercity facilities and isn’t active at all in voice, which by itself takes them out of the same league as the others.

  3. Qwest may buy covad, after which it buy’s level 3. While Verizon, AT&T are so focused on cellular, Qwest will become the dominant backbone and landline data transport provider. Then, when Qwest is ready to get back into the wireless game on thier own, not piggybacked on sprint, WiMax will be ready for prime time. FWIW

  4. I’m a skeptic of LVLT, here’s why…

    — Everyone is excited about video, BUT, can LVLT actually make much $ from video on the web? I’ve heard from a number of folks that they bid very aggressively on the YouTube and MySpace deals, and been told they’re unlikely to make much $ from either contract. If LVLT can’t make big $ supplying bandwidth to YouTube…how can they make make $ w/video at all. Is any of this true?

    — I have also heard they don’t make much $ in their VOIP business (something they talk about as a big future +, and I think everyone is excited about it), as its very low margin, so even if they get big volumes it doesn’t matter much.

    — So where does this leave them? Back w/their bread and butter transport business, which is getting better (pricing is better, volumes are up, that’s good), but still doesn’t sound great. Interestingly enough, they don’t seem as interested in that business as in the past, the evidence…they’re buying all of the metro fiber and enterprise business they can get their hands on right now, and they haven’t traditionally sold to the enterprise (remember the carrier’s carrier).

    — Finally, am I the only one questioning their BWNG synergy estimates? They claim they can take BWNG from almost zero ebitda today to 300mm in 2009, this on punk revenue growth of just 4% at BWNG, and, lots of legacy voice at BWNG? I know there are cost savings in this deal, probably some big ones, but, they say 60% of the savings are in SG&A, yet they also say they want to keep alot of the BWNG sales force around to sell to the enterprise? How is this possible? In other words, how do you cut the sales force in a big way (I’m assuming they do that to get the savings, but maybe its all at company HQ) and still sell effectively to the enterprise?

    I understand all of the hype, and I certainly don’t question the logic of the LVLT and BWNG deal (and it’s a clear + for the industry), I do, however, question some of the the claims around it.

    Getting back to my first question…can these guys make $ on video, as there is already a lot of video traffic on the web, but I don’t see anyone (including LVLT) breaking it out as a separate line item on their income statement (b/c I don’t think its very big, and maybe it wont be, in other words, lots of traffic volume, not alot of revenue).

    Any help appreciated, as I’m open to changing my mind.

  5. i’m in agreement with the last comment on the skepticism on LVLT. The whole reason why websites such as Youtube & Myspace have emerged is because the marginal cost to the consumer (beyond what you pay the RBOC for access) for up/downloading videos is zero – a function of cheap bandwidth, hence why the revenue contribution, despite the spectacular traffic growth from such sites, is miniscule. When you also take into account the trend towards of P2P distribution for video (i.e. BitTorrent, Napster), then you what you get is true zero marginal cost distribution of content (look at Skype for VoIP). Although i understand the industrial logic for buying BWNG, the reality is that bandwidth is theoretically an infinite resource – a function of huge advances in optical technology (who would have thought of 160 wavelengths on a single fibre in 2000!). Supply can and is always likely to greatly exceed demand. When you also take into account that the big guys (VZ & T) are consolidating the traffic originating from their local access networks onto their own backbones, the likes of LVLT, XOHO will remain marginal players.

  6. you may have forgotton Time Warner Telecom on this list. while largely a CLEC, they do have a large national transport network and decent IP network. Seems to me, by the way, that Sprint at 6x EBITDA is next to go…

    In any event, I don’t see how the Level3 story works. They have rolled up several economically unviable businesses. Both telco competitors and all roll-ups are notoriously hard to manage to a profit. they have clearly taken alot of capacity (i.e., competition). Their clients, cable co’s and others, are either much larger than them (leverage) or are Web darlings shopping for cheapest bandwidth. MCI, T, etc., made a go of the long haul space with huge enterprise accounts, not Flavor-of-the-Week.coms.

    This will be the best BK in history. I plan to get a front row seat and bring popcorn.

  7. Abovenet is good at metro rings, don’t know if they have any long haul biz.

    Savvis is the opposite, a tier-1 ip network bot from MCI, but less in metro assets.

  8. Qwest isn’t buying anyone with their debt load and XO uses a lot of LVLT dark fiber. Sprint and Global Crossing haven’t been mentioned as acquisition targets.

    Prediction: Qwest & Sprint merge in 2007 to compete against the big Two. GlobalXing spins off its domestic unit to focus on their prime Latin American business.

Leave a Reply to John Erb Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.