Level 3 Snaps Up TelCove

Level 3 Communications Inc. is at it again.

The wholesale provider, which two weeks ago announced its third acquisition of the year, said on Monday it next will buy TelCove Inc., a privately held CLEC based in Pennsylvania. Level 3 already has snapped up competitive carriers Progress Telecom and WilTel Communications Group LLC within the past six months.

Level 3 agreed to pay $1.24 billion for TelCove. That amount includes $637 million in shares of Level 3 common stock, $445 million in cash and $155.5 million in the assumption of debt. The deal is expected to close in the third quarter. Level 3s stocks were up 32 cents at $5.72 in early afternoon trading on Monday.

Having access to TelCoves metro markets will enable us to increase our focus on on-net, high-margin business, explained Kevin OHara, president and COO of Level 3. In addition, this acquisition should meaningfully reduce expenses paid to third parties for local access.

As with the previous purchases, buying TelCove will expand Level 3s market reach. TelCove owns more than 22,000 local and long-haul route miles serving 70 markets across the eastern United States, with approximately 4,000 buildings on net. Thanks to the TelCove acquisition, Level 3 also will get more than 300 LMDS and 39GHz licenses that it says cover 90 percent of the U.S. population.

OHara also said Level 3 is forming a separate business unit, Level 3 Metro Services, which will focus solely on the companys expanded market reach. That division will have the appropriate management, sales and technical resources at the local level to ensure a clear focus on those markets,” OHara said.

Once TelCoves operations have been integrated into Level 3, its metro and regional networks will connect Level 3s national backbone network directly to traffic aggregation points. These aggregation points include other carriers PoPs, local telecommunications companies central offices, wireless providers switch centers, colocation and data centers, cable company head ends, and high-bandwidth enterprise locations.

Before it decided to buy TelCove, ICG Communications and Progress Telecom, Level 3 already had metro infrastructure in 36 markets, connecting to approximately 900 traffic aggregation points. With the acquisition of those companies, Level 3 says it will be able to increase the number of traffic aggregation points to approximately 5,000 in the United States and approximately 5,200 globally.

Finally, OHara explained, “The integration model for TelCove is different than a number of other acquisitions Level 3 has completed, where synergies were driven through the elimination of overlapping facilities and duplicative costs. While certain functions will be integrated and some positions eliminated, the primary drivers of value are opportunities to reduce Level 3s network related expenses and to increase sales to existing and new customers.

Level 3 Communications Inc. www.level3.com