It Finally Happened

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

It Finally Happened

Level3 finally buys Global Crossing for $3B including assuming $1.1B in GC debt.

This is a merger that the industry has expected for some time. Honestly, I don't see how it works, because it's about synergies. My favorite word, because it means we will fire a lot of people with overlapping job titles, but not overlapping knowledge. The combined revenue will be $6.6B while the debt will be $7.8B. The L3 CFO is a magician! How he is able to wave his wand to hold back Wall Street, do an acquisition, and pay off interest is utterly amazing. (Although the press release does say that this transaction improves the credit report.) L3 also had to do some dancing to maintain its NOL's (Net Operating Losses). These are the same tokens that Carl Icahn fought so hard for at XO. (BTW, XO's CEO, Carl Grivner Resigned today too.)


It's about scale. (Says so in the press release and every analyst report.) Rob Powell thinks this integration will be "easy". One exec at Level3 called this merger "exciting" this morning. Does he realize the axe will have to fall a lot to reach those synergies? And morale is already taking a hit with channel personnel losses from Craig Schlagbaum and Scott Mull. It should be an interesting year for them. I hope this doesn't impact provisioning in any significant way (like it did during the last acquisition).

If L3 really wanted to shore things up, they would buy Cogent, who is their nemesis in the IP game. Cogent depresses the price of IP in every market it is in. Currently, Cogent is as low as $1.50 per MB on a Gig port!!! That's the same rate as HE. You can't pay back almost $8 Billion in debt with price pressure on your best product like that.

While the world is flat and going global is great, the key to any telecom business model is to SELL DEEP. That means get as many customers on a fiber route as possible; sell as many customers in a lit building as exist; and own a market segment.

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