Level 3 Buys Triple-Play Shot

by Colin C. Haley

The backbone operator will pay $680 million for WilTel's network and video subsidiary.

Level 3 today said it will pay Leucadia National Corp. $680 million cash and stock for its WilTel Communications Group.

The deal, expected to close in early 2006, will enhance the Broomfield, Colo., backbone operator's ability to offer wholesale voice, data and video services to telecoms and ISPs.

In addition to adding to its fiber-optic network, Level 3 gains WilTel's Vyvx video distribution subsidiary. While it provides only 10 percent of WilTel revenues, Level 3 sees great potential in providing live video feeds to news and entertainment outlets.

"There's no doubt in our minds that over time, video and media content in general will move to IP fiber networks," James Crowe, Level 3 CEO, said in a conference call with analysts.

Vyvx will continue to operate as a separate unit post-acquisition, while relying on Level 3's network infrastructure.

Level 3 also adds multi-year contracts, including one with SBC .

SBC, which is moving its traffic onto AT&T's network, is still committed to spending at least $675 million with WilTel over the next four years. SBC could pay an additional $50 million to Level 3 if performance measures are met.

Assuming the SBC contract will force two companies with a sometimes prickly relationship to work together. Earlier this year, Level 3 and SBC clashed over VoIP fees.

Not included in the Level 3's purchase is WilTel's Tulsa, Okla., headquarters and any WilTel debt.

Integrating WilTel will take approximately 15 months to 18 months, said Level 3 COO Kevin O'Hara. There will be layoffs as the best employees from the combined companies will be retained.

No specific numbers were laid out; Level 3 has 3,100 workers and WilTel has 1,800 employees.

Level 3 has been actively acquiring network operators since the telecom slide of the late 1990s. For example, it picked up the assets of Genuity in 2002.

"We think this industry is ripe for consolidation and we are a logical consolidator," O'Hara said.

This article was originally published on Monday Oct 31st 2005