CenturyLink Expands Net Push With Level 3 Deal
CenturyLink Inc., which has struggled to gain traction in the cutthroat public cloud market, continued its shift away from datacenters toward delivering more Internet traffic for businesses with a $34 billion deal to acquire Level 3 Communications.
The companies announced the cash and stock deal on Monday (Oct. 31). The acquisition creates a stronger competitor to AT&T Inc. (NYSE: T) and others in the market to provide enterprises with long-haul network connections. Still, analysts remain skeptical whether the combination of two asset-based services providers can make much headway against current networking giants.
CenturyLink (NYSE: CTL), based in Monroe, La., has said it expects to sell off much of its datacenter business by the end of the year. CenturyLink CEO Glen Post has said the company would retain some datacenter colocation services as it zeroes in on big data capabilities and managed IT services.
Post will lead the combined company while Sunit Patel, Level 3's chief financial officer, will fill the same post with the new networking provider.
Level 3 Communications (NYSE: LVLT), Broomfield, Colo., operates one of the largest Internet backbones in the world but has seen it enterprise business slowing. The deal allows CenturyLink to upgrade its network infrastructure with fiber-optic capacity and network virtualization tools as it positions itself to compete with AT&T and Verizon Communications Inc. (NYSE: VZ).
Enterprise network providers have been steadily shifting down market to medium and smaller businesses to boost sagging revenues. The networking sectors has seen significant consolidation in recent years as both CenturyLink and Level 3 have made a series of acquisitions as they seek to built out global Internet backbones.
The deal for Level 3 also signals CenturyLink's steady shift away from the cloud infrastructure services market currently dominated by Amazon Web Services (NASDAQ:AMZN) and Microsoft Corp. (NASDAQ: MSFT). In the most recent cloud rankings released this past summer by market watcher Gartner Inc. (NYSE: IT), CenturyLink was listed as a "niche player" trailing AWS, Microsoft, Google (NASDAQ: GOOGL), Rackspace (NYSE: RAX) and Virtustream, the cloud management unit of Dell Technologies (NYSE: DVMT).
Century Link, the former US West regional telecommunications carrier, maintained a reputation for dependable DSL service, but only had enough optical fiber capacity to fit into its "fanout-to-the-DSL-pedestal strategy," noted Loring Wirbel, a senior networking analyst with the Linley Group.
"The combined company would have 500,000 route miles of fiber," Wirbel estimated. "Level 3 also has a good reputation in developing virtualized services above Layer 3, including advanced [software-defined networking and network function virtualization] software.
"Whether two complementary asset-based services could be combined into a coherent whole, however, is still an open question," he added.