By Roopa Honnachari

Aims for #2 Spot in the U.S. Communication Services Market 


On October 31, 2016, CenturyLink announced its decision to acquire Level 3 Communications. The deal, assuming it clears regulatory approval by the FCC and SEC, will be valued at $34 billion in cash and stock. CenturyLink expects annualized savings of approximately $975 million from synergies derived from the acquisition. The companies expect the transaction to close in Q3 of 2017.

CenturyLink is a leading incumbent local exchange carrier (ILEC) that has offerings in wholesale, business and consumer services markets. The company offers voice, video, data and IT services to global enterprises. Level 3, a competitive local exchange carrier (CLEC), has voice, data, video and managed network services offerings in the wholesale and business services markets. Both CenturyLink and Level 3 have been on an acquisition spree in the past decade to expand their breadth of footprint and depth of offerings, domestically and internationally. Notable acquisitions include Qwest (2010) and Savvis (2011) for CenturyLink; and Global Crossing (2011) and tw telecom (2014) for Level 3.

Through a series of acquisitions, including Savvis, Tier 3, and AppFog, combined with its own data center and network footprint, CenturyLink has also established itself as a leading cloud service provider.

Level 3 has a wholesale background, but has acquired several business-focused companies in the last decade, to emerge as a leading communication service provider in the business segment. Level 3 does not have a consumer services focus, and has limited presence in the cloud services space (offering Infrastructure as a Service only in the Latin America region). Level 3 does, however, have extensive offerings for consumer-servicing businesses, the public sector, and mobile wireless providers, as will be described later in the report. The combined company expects to increase on-net buildings by nearly 75%, to approximately 75,000, including 10,000 buildings in EMEA and Latin America.

With CenturyLink’s acquisition of Level 3, the company’s U.S. competitive positioning (based on market shares) in the high-growth, enterprise segment will leap to second place, behind AT&T. In this paper, we provide Frost & Sullivan’s analysis on the implications of this merger to the companies and the market.

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