Level 3 Closes Genuity Buy, Inks Verizon Contract

Wholesale communications provider Level 3 Communications has completed its acquisition of bankrupt rival Genuity and locked in a deal with Verizon , one of Genuity’s largest customers.

Based on the timing of the final paperwork and other factors, the purchase price totals $137 million cash, significantly lower than the $242 million figure floated when the deal was announced in November.

“This transaction marks the first major consolidation for the industry after the market turmoil of the past few years,” said James Q. Crowe, CEO of Level 3, a Broomfield, Colo., company with a war chest provided by famed investor Warren Buffet.

As for the new contract, Level 3 will provide Verizon with transport and Internet protocol services, which the New York voice and data carrier can use or resell to customers. It will also become Verizon’s digital subscriber line aggregation supplier in 20 North American markets.

As part of the multi-year agreement, Level 3 will purchase services from Verizon to expand its managed modem business.

It was Verizon’s decision not to reintegrate Genuity last summer that plunged its former subsidiary into financial distress, accelerating a Chapter 11 bankruptcy filing and asset sale.

The Verizon contract comes shortly after Level 3 announced it would retain Internet service provider America Online as a customer. AOL was Genuity’s other major source of revenue.

Seth Libby, a analyst at the Yankee Group, said “contracts with Verizon and (AOL) — combined with Level 3’s existing business — establish Level 3 as the primary provider of backbone connectivity for millions of broadband subscribers.”

Libby said Level 3’s acquisition provided needed consolidation in the market and positions Level 3 with AT&T, WorldCom and Sprint as top Internet traffic carriers.

As Genuity becomes part of Level 3, its focus will be managed services. The company will remain in Woburn, Mass., and will deliver a product suite that includes Internet access, Web hosting, virtual private networks — similar to its Black Rocket offering.

Former Genuity CEO Paul Gudonis will stay on as an executive vice president with Level 3 and will help oversee the integration.