By Jaymie Scotto Cutaia
Level 3 Communications says it will buy IP solutions and networking provider Global Crossing. The transaction is valued at $23.04 per share, or approximately $3 billion, including the assumption of approximately $1.1 billion of net debt from Global Crossing. The deal will be an all-stock transaction.
Already folks are speculating on why this deal is huge news. Acccording to Dean Takahashi on Deals & More, “the deal brings a much-needed consolidation to the broadband market, where the potential for traffic growth is huge but the major players have been hurt by low prices.”
And Gigaom says that the deal will give Level 3 more clout to negotiate with bigger telecommunications players, such as Comcast, even as network ownership consolidates into the hands of fewer players.
But can we boil this down further?
Both L3 and Global Crossing are losing money. Level3 lost $622 million last year and hasn’t turned a profit since 1998, according to Mr. Takahshi. And Global Crossing lost $172 million in 2010 and it last turned an annual profit in 2003.
So why now and why an all-stock transaction? How can a negative and a negative add up to a positive? What’s the real pay-off here?
Let’s go back to the quote from John Legere, the CEO of Global Crossing, in the official press release, which stated, “The timing of this combination is perfect. The demand for online content – in all its forms – has created unprecedented demand for bandwidth, and our combined platform will enable us to move massive amounts of content around the world, largely on our own facilities, under our control. The need to bring scale to the market is more important than ever before, and that is something that the combined company will have – in spades.”
As Mr. Legere stressed, the deal is all about “on our own facilities, under our control”. This is a direct reference to owning- and therefore controlling the fiber. The telecom world is quickly dividing into two factions: those who have fiber and those who do not.
This critical infrastructure— and then the power to select whom has access to this infrastructure– is becoming an apparent, all-out battle. It stirs up the old net neutrality argument— and how those who have control over the last mile of fiber can thereby dictate the terms, especially for the enterprise market. So how do we right this ship and get out of the death spiral? I’ll tell you this: I’m not holding my breath until Global Crossing and Level3 let me have access to their fiber stock.
We need an immediate, carrier and network-neutral, dark fiber provider that is willing to incur the outrageous start-up costs (ideally with government support- if Obama is still interested in his big broadband push) so we can actually lay the much-needed fiber ducts across the expansive USA, to allow folks in the Bible Belt- and the non-NFL cities- to have access to choice and to ‘fiber freedom’. We need to take the technology that’s blossoming on the east and west coast – and bring it to rural America who could use the fiber and connectivity and access for increasing the wealth of education, starting businesses and saving the family farms. As a woman who spends her time between the city and the country, and sees the disparity between “those who have” and “those who have not” on a regular basis, it’s time to connect our country.
The 2011 SubTel Forum had a great article called “2011: The Year of the Investment to Neutral, Dark Fiber Network Infrastructure” — and it points out clearly that this is Allied Fiber’s plan— to build the necessary dark fiber infrastructure and give access to all. And that this fiber plan can be duplicated in metro communities, over and over again, and similar to the Internet, can branch out and reach the hard-to-reach.
This sounds more like the big deal to me.