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:
- 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.
- 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.
- 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.
- 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
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.
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