Close of Level 3-WilTel deal caps big buyout year

Addition of WilTel gives Level 3 about 3,000 more route miles and access to 50 new markets

Yet another sizable U.S. carrier merger was completed Friday as the end drew near for a year that's seen the country's telecommunications landscape reshaped through consolidation.

Wholesale backbone provider Level 3 Communications Inc. closed its acquisition of WilTel Communications Group LLC, a midsized fiber-optic network operator, ahead of schedule, the company announced Friday. When Level 3 made the buyout deal with WilTel parent Leucadia National Corp. in October, the companies said they expected it to close in the first quarter of 2006.

Both companies sell wholesale access to backbone infrastructures. The addition of WilTel, in Tulsa, Oklahoma, will give Level 3 about 3,000 more route miles and access to 50 new markets, Level 3 said in a statement Friday. Level 3, in Broomfield, Colorado, has a 23,000-mile fiber optic network and provides collocation, VOIP (voice over Internet Protocol) and other wholesale services in addition to network transport.

The purchase price of WilTel has grown to about US$724 million in cash and stock, up slightly since the time of the agreement, as Level 3 increased the cash component because of an improvement in WilTel's working capital, the company said. In addition, Level 3 has paid a $100 million cash consideration for WilTel's $100 million in cash holdings.

Integrating WilTel's network into its own will approximately double the size of Level 3's communications business, adding about $1.5 billion to $1.6 billion to its 2006 communications revenue, according to the company. The merged company will eliminate some duplicative resources, it added. Integration is expected to cost between $100 million and $150 million.

WilTel's biggest customer is AT&T Inc., the former SBC Communications Inc., which had agreed to buy about $675 million worth of services from WilTel from 2005 through 2009. Level 3 will continue with that contract.

Vyvx LLC, a WilTel subsidiary that delivers video content to broadcasters, production houses and other customers, is also included in the deal, the company said.

The past year has seen two giant carrier consolidations, as SBC acquired AT&T Corp. and Verizon Communications Inc. bought MCI Inc. Also this year, Sprint Corp. and Nextel Communications Inc. merged to form Sprint Nextel Corp.

Copyright © 2005 IDG Communications, Inc.

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