Telecom merger could help Cdn enterprises: Analyst

Canadian enterprises could gain more competition for communications services if Level 3 Communications Inc.’s billion-dollar offer to buy Global Crossing Ltd. goes through, according to an industry analyst.

 “Hopefully this acquisition will give Level 3 a much larger footprint in Canada than it has now,’ Derek Silva, a networking and telcom analyst at London, Ont.-based Info-Tech Research said Monday.

“And hopefully that will spur some innovation and investment in the Canadian retail voice and data services market, because goodness knows we could use it up here.”

Both Level 3, headquartered in Broomfield, Colo., and Global Crossing, based in Bermuda, have points of presence in Toronto and Montreal. However, Silva said Global Crossing, which focuses more on Ethernet services to enterprises, is better known here compared to Level 3, which until recently has targeted wholesale services to carriers. Level 3 was sizable, but the combined entity would give it a global presence it doesn’t have.

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“I wouldn’t be surprised if [after the deal has been consummated] Level 3 did some sort of marketing push in the major markets in Canada on the new services they offer,” said Silva. “For the choices we have [now] and the amount of marketing by Global Crossing here in Canada, level 3 has a decent opportunity to really ramp things up and disrupt the market a little bit, if they’re smart about it.”

For example, he said, Global Crossing’s teleconferencing services could challenge offerings of Canadian incumbent carriers who “charge a lot more than you need to be paying,” he said.

“Canada represents a really good opportunity” for a merged Level 3, said Silva.

A Level 3 executive maintained the deal will be good for Canadian enterprises and carriers. “This deal will be good for our Canadian customers because it will create a world-wide infrastructure that allows them to connect to anywhere they operate,” Jeff Storey, president and COO of Level 3 Communications Inc., said in an interview.

The deal brings two money-losing providers together, although they are two substantial Tier Two operators. Level 3, with a network largely straddling North and Latin America, lost US$622 million on revenue of $3.65 billion in 2010. Global Crossing – which came out of bankruptcy protection some eight years ago – lost US$176 million on US$2.6 billion of revenue with a network that covers Europe, Asia and North America.

Silva said the deal shows that Level 3 is “tired of having their margins squeezed in the wholesale market” of services to carriers. That’s where it makes most of it money, he said.

Storey said the deal came about because it a “very compelling combination of two carriers” that have complimentary services.

However, Level 3 treasurer Robin Grey also said one goal of the deal is to help the combined entity generate more free cash for network investment.

Asked if the deal will mean layoffs for the Canadian staff, Storey said every effort will be made to find jobs for everyone. “There are not huge reductions planned,” he said. Silva has doubts.

Level 3 will pay about US$3 billion for Global Crossing, but will also assume about US$1.1 billion of Global Crossing’s debt, the companies said in a press release. The combined telecom/Internet company will own network facilities in more than 50 countries, and will have combined annual revenues of more than US$6 billion.

Jim Crowe, Level 3’s CEO, told reporters the combined company will have access to fast-growing international markets, and will have a “balanced mix” of telecom and broadband services.

The companies expect the deal to close by the end of the year. The acquisition is subject to regulatory approval, including possible reviews by the U.S. Department of Justice and the U.S. Federal Communications Commission.

(With files by Grant Gross, IDG News)

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