Gartner Blog Network

Level 3’s Acquisition of tw telecom a No-Brainer

by Andrew Lerner  |  June 19, 2014  |  Submit a Comment

This is a guest blog from Lisa Pierce.

The greatest subject of interest at this week’s Level 3 Analyst Conference  was its announcement to acquire tw telecom.  This proves that lightning can strike twice, because I was also at Level 3’s headquarters the day it announced its intent to acquire Global Crossing.

Post-integration, I expect Level 3 will emerge as a more formidable landline enterprise services competitor.   Any increase in viable choices for enterprises always is good news- but it is especially welcome in a market that has effectively operated as an oligopoly for over ten years.  Some of my thoughts include:

  1. Although no details have been announced yet, key elements of the each company’s product portfolios are complementary.  For example, Level 3 lacks a feature similar to tw telecom’s dynamic bandwidth control.  This deal can fill that gap.
  2. The combined domestic on-net footprint of the combined carrier will triple Level 3’s on-net presence to roughly 30,000 buildings.  Compared to using third party access, on-net access provides enterprise clients with improved price and performance.
  3. Both are complementary as to the markets they serve- 66% of Level 3’s customer base is mid to large enterprise, 34% is wholesale.  In contrast, tw telecom primarily serves small to mid-size business.   Post-deal close, by percentage of customers, this will radically change- the company will be 30% wholesale.
  4. Level 3 is bullish about the financial synergies, but since as an analyst, I’m also a born skeptic.  However, even to my thinking, the deal builds on some solid momentum.  In the past year, Level 3’s core network services (CNS) revenue grew by 14%.   Pre- tw telecom, two-thirds of CNS revenues are from enterprises (vs. wholesale).

The devil of any deal is always in the details, and among them:

  • Portfolio rationalization and integration- for some products, like SIP Trunks could be very tricky because each carrier’s offering provides unique benefits.
  •  Back office rationalization and integration- Level 3 executives are complementary about the simplicity and flexibility of tw telecom’s customer portal, so is it is possible that elements of tw telecom’s OSS/BSS will be retained and integrated into the larger carrier.
  • Customer-facing organizations including sales, field engineers, and technical support.  Given the minimal amount of overlap in markets served, I expect this portion of tw telecom’s  organization to be retained by Level 3.  Each carrier has hard-earned expertise at serving its respective client base.  The question is how best to retain this substantial competitive advantage going forward.

On a scale of 1-10, I rate Level 3’s overall integration of Global Crossing to be a 7.5 (a great improvement from some of its earlier acquisitions).  Thus, assuming the above areas are well addressed and executed,  I expect this integration will be in the 8.0 range—something virtually unheard of in the telecom carrier world. tw telecom clients should expect the fully combined entity to be at least as good as their current experience; in the interim, it’s prudent to retain contractual flexibility in the event you experience difficulty. Remember that Gartner is available to work with you on your contingency plans, and you can check out this published research for more detail:

Critical Capabilities for U.S. Wireline Telecom Services

Danellie Young Robert F. Mason Sorell Slaymaker

Summary: Service execution has varied among wireline telecom providers, with several lagging in customer support and implementation. Network managers and sourcing professionals should evaluate wireline telecom service providers based on their unique requirements and how they align with specific use cases.


Additional Resources

View Free, Relevant Gartner Research

Gartner's research helps you cut through the complexity and deliver the knowledge you need to make the right decisions quickly, and with confidence.

Read Free Gartner Research

Category: carriers  guest-blog  in-the-news  ma  networking  wan  

Tags: global-crossing  level-3  tw-telecom  

Andrew Lerner
Research Vice President
6+ years at Gartner
21 years IT Industry

Andrew Lerner is a Vice President in Gartner Research. He covers enterprise networking, including data center, campus and WAN with a focus on emerging technologies (SDN, SD-WAN, and Intent-based networking). Read Full Bio

Leave a Reply

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

Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.