Level 3 buys TelCove; Is it MFS II?

Oracle is not the only one on an acquisition spree. After buying WilTel ($700 million), Progress Telecom ($68.5 million, pending) and ICG Communications ($163 million, pending) over the past six months, Level 3 has announced another acquisition. It is buying Pennsylvania-based TelCove, a facilities-based provider of metropolitan and regional communications services, for $1.24 billion. Level 3 is placing its bets on the bandwidth intensive enterprise and hopes to expand its network into the eastern metro U.S. markets. Combining these buys with its own setup, Level 3 has also formed Level 3 Metro Services as a separate business unit. (This may explain why Level 3 was collecting interest levels from its CTIA booth visitors on metro/regional networks.)

This sounds a lot like MFS Communications, part two, in the making. Remember the local network access facilities provider that changed its business model, returned from bankruptcy and was later sold to MCI for $14 billion in 1996? Level 3 has about $6 billion in long-term debt and is not profitable. In the first quarter of 2006, Level 3 reported revenue of $1.3 billion and a loss of $168 million. To top it off, the Level 3 management team on yesterday's conference call--CEO Jim Crowe, Vice Chairman Charles Miller, COO Kevin O'Hara, CFO Sunit Patel and Level 3 Wholesale VoIP Services SVP Kevin Dundon, who will lead the Level 3 Metro Services--have been involved in the metro business for some time now. "We are familiar with this business in our bones and we are comfortable with it," said Crowe. I am sure many of us will watch if Level 3 reaches higher levels with its new business.

TelCove, formerly known as Adelphia Business Solutions, covers 70 markets in the eastern U.S. and makes about $390 million annually. The deal is expected to close in the third quarter of this year. In terms of metrics, all the pending acquisitions will increase Level 3's current traffic aggregation points from 900 to about 5,000 in the U.S.

To learn more about Level 3-TelCove acquisition:
- read Level 3's press release [1]
- listen to Level 3's investor relations call [2] (online until midnight, May 3)