RealTime IT News

Level 3 Buys More Local Fiber

Communications wholesale giant Level 3 Communications continues its philosophy of buy local, grow global.

The Colorado-based IP backbone announced plans to acquire ICG Communications for a stock-and-cash purchase worth $163 million.

The deal centers on ICG's more than 2,000 miles of fiber-optic connections in Colorado and Ohio, as well as 500 points of presence (POPs) used by 1,600 ISPs, wireless carriers and businesses.

The $163 million buy-out includes $127 million in unregistered Level 3 stock and $36 million in cash. Level 3 says it retains the right to substitute cash for stock, according to a statement.

Why is Level 3, which reported $944 million in revenue for the last quarter of 2005, buying a company with $80 million in annual revenue?

"This transaction gives Level 3 the opportunity to expand our footprint into areas where we see demand for our services, and to realize cost savings," Kevin O'Hara, president and CEO of Level 3, said in a statement.

ICG says as a result of the acquisition, its customers "will be in good hands," Dan Caruso, present and CEO of ICG, said in a statement.

The acquisition doesn't include ICG's investments in VoIP provider New Global Telecom or Mpower Holding.

While today's acquisition targets ICG's fiber holdings, a year ago Level 3 peeled away the Denver, Colo.-based company's dial-up assets for a similar $35 million. The company has 250 employees.

ICG, a victim of the Internet bust of 2000, had shrunk from its original nationwide footprint, serving up to 10 percent of U.S. Internet traffic to bankruptcy. After purchase by venture capitalists, the company returned in Ohio and Colorado.

Level 3 expects ICG's fate to improve once it becomes part of the larger company.

ICG's $15 million annual cash flow should jump to $30 million or $40 million once the deal is finalized, according to a statement by Sunit Patel, Level 3's CFO.

While Level 3 spokesperson Chris Hardman refused to discuss details of the ICG acquisition before next week's earnings announcement, he agreed the purchase will help the wholesaler's local presence. Recent acquisitions of local ISPs seem to confirm Level 3's plans.

In March, Level 3 completed the $68.5 million cash and more than 19.6 million shares of stock acquisition of Progress Telecom.

Progress, based in St. Petersburg, Fla., and jointly owned by Progress Energy and Odyssey Telecorp., expanded Level 3's presence in the southeastern U.S., according to O'Hara.

The purchase gives Level 3 200 local customers, including 29 metro networks, 31 mobile switching centers and international connections along a 9,000 mile network.

A 2005 $680 million cash and stock purchase of a Tulsa, Okla.-based fiber provider resembles the ICG acquisition. WilTel Communications Group provides voice, data and Internet access across a nationwide fiber network.

After spending billions creating a nationwide fiber network, WilTel, then called Williams Communications, went bankrupt. After leaving bankruptcy, the company was purchased by New York investors in 2003.