On Monday, the Department of Justice (DOJ) consented to CenturyLink's proposed $34 billion acquisition of Level 3 Communications, subject to conditions that require the merged entity to divest overlapping network and dark fiber assets in certain markets.
Announced a year ago, the cash, stock and debt transaction combining CenturyLink--the nation's third-largest provider of fixed wireline network services--with Level 3, one of the world's largest providers of Internet backbone services, would position the merged entity as the second-largest provider of business communications services in the U.S. The deal would also give CenturyLink a significant market presence beyond the U.S. for the first time, owing to the acquisition of Level 3 assets that include 200,000 route miles of fiber optic network lines spanning commercial buildings and other locations throughout Latin America, Europe, the Middle East and Africa.
Although CenturyLink and Level 3 have already obtained regulatory approvals from all but one state (California) impacted by the transaction, FCC consent remains outstanding. Last spring, the FCC stopped its informal 180-day "shot clock" for merger approval at the 170-day mark to obtain additional information from the companies. As part of that information request, the FCC asked the merger partners to describe (1) the extent to which CenturyLink and Level 3 compete against each other in the provision of business data, business Internet access, dark fiber, long haul fiber and metro fiber services, and (2) the extent to which the proposed merger will affect the companies' plans and offerings for these services.
Under the consent decree which the DOJ submitted for court approval on Monday and to which the parties have agreed, the merged entity will be required to divest metro network assets owned by Level 3 in the following markets: Albuquerque, New Mexico; Boise, Idaho; and Tucson, Arizona. The consent decree also requires the combined company to divest 24 strands of dark fiber connecting 30 specified city-pairs across the country. Noting that these fiber strands are not currently in use, the companies stated in a press release that such a divestiture will not affect current customers or services. The companies further stated that the required metro fiber sale is "not expected to have a material impact on the pro-forma operating revenue and operating cash flows of the combined company."
Court approval of the DOJ consent decree is expected to lead shortly to approvals by the FCC and by the California Public Utilities Commission. Terming DOJ approval as "an important milestone," CenturyLink senior vice president John F. Jones proclaimed: "we are focused on meeting our targeted transaction timeframe of mid-to-late October."