Level 3 Communications, the tier 1 network operator will acquire Global Crossing in a deal worth $3 bn, including an estimated $1.1bn of assumed net debt.
The combined company will have a network spanning over 70 countries with customers in more than 50 of these, offering a suite of services, including voice and data connections for large businesses and network solutions, particularly data transport, for third party fixed and mobile providers.
The deal is subject to regulatory approval and expected to close by year-end 2011.
Analysis
The acquisition marks a movement towards consolidation in the tier 1 operator market (a tier 1 operator is defined as an operator which has peering relationships with all the other tier 1 ISPs and is generally said to be not more than one network hop away from any point on the internet). This move is unsurprising given the rapidly commoditizing nature of the data transit business in recent years, with margins for operators growing increasingly thin as the cost per GB transferred has fallen.
Level3 will boost its geographical scale significantly, expanding its network footprint into Latin America and Asia. By gaining reach, Level 3 hopes to grow its revenue and cash flow in the long-term, as well as benefitting from cost efficiencies from overlaps between the two networks for data transport services. The company estimates over $110m of savings will result from network expense synergies, particularly where the two companies duplicate coverage in North America and Europe.
In addition, Level3's bulking up of network assets in current regions and growth of infrastructure in new areas should help minimise backhaul costs for the company's existing content delivery network (CDN) services, while also opening up opportunity to launch CDN initiatives in new countries which are seeing rapid growth in bandwidth demand from booming online content services.
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