Rationalizing the CenturyLink/Level 3 Merger

Nov 01, 2016

This week’s CenturyLink announcement to acquire Level 3 Communications is the latest in the seemingly endless cycle of consolidation in both the network and voice services markets. While conventional wisdom suggests that bigger is always better, the merger of data and voice networks is far more nuanced. Here are the things I plan on keeping an eye on as this particular acquisition unfolds.

Footprint, footprint, footprint. One certain truth is that big networks matter. Addressable network footprint is a key to success for any service provider. With this in mind, the Level 3 acquisition makes a lot of sense for CenturyLink, as its network footprint will grow significantly with 200,000 additional miles of fiber as well as the combined company’s ability to reach substantially more businesses in North America, Latin America, and Europe. Once approved and closed, the acquisition will give CenturyLink an impressive footprint, achieving a solid measure of parity with its competitors, including AT&T and Verizon.

More than just a network. It will be important to watch the direction CenturyLink takes with Level 3’s other services, particularly voices services. Level 3 has always been laser-focused on the higher-end enterprise segment, and as such its value added services like Voice Complete are tailored to match the needs of that market. Conversely, CenturyLink has a much broader range of target customers. The good news is that the respective customer bases are highly complementary, but it also makes the rationalization of the combined CenturyLink/Level 3 service suite extremely important and this will factor heavily into the success or failure of the acquisition. Put another way, the new organization will need to retain the best of both providers to hold on to existing customers as well as pursue new growth strategies.

Integration takes time, even if you know what you’re doing. M&A is still the fastest path to growth for service providers, but long term success requires a strict regime and commitment to integration. The success of a combined CenturyLink and Level 3 will ride heavily on whether the executive team can make the new organization greater than the sum of its parts. It should also be noted that integration of service providers is a time consuming process. It will take quite a while for the combined CenturyLink/Level 3 entity to come together as a cohesive whole that is able to aggressively compete against the bigger players in the market. However, both companies have a history of successful acquisitions and integrations, so this could be a most streamlined process.

Early Verdict: While it’s extremely early in the process, as the acquisition is not expected to close until this time next year, it certainly appears CenturyLink and Level 3 have significant synergies. If CenturyLink can retain the elements that have made both companies successful, the service provider will be very strong contender in the network, UC and cloud services markets going forward.


Category : Cloud, Enterprise

Michael Brandenburg

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