On Wednesday, CenturyLink, Inc. completed its purchase of Level 3 Communications upon receiving FCC approval to proceed with the $34 billion transaction, subject to conditions which require the combined company to refrain from increasing service rates at specified locations for a five-year period.
Announced Tuesday, the 4-1 FCC vote in favor of the merger corresponds with approvals handed down earlier this month by the California Public Utilities Commission and the Department of Justice (DOJ), which conditioned its consent on the merged entity’s compliance with a consent decree requiring the divestiture of overlapping network and dark fiber assets in certain markets. With the completion of the transaction, the newly-merged entity consisting of the nation’s third-largest provider of fixed wireline network services (CenturyLink) and one of the world’s leading providers of Internet backbone services (Level 3) ranks as the second-largest provider of business communications services in the United States.
In a Memorandum Opinion and Order approving the merger, the FCC concluded that, with the imposition of the rate conditions described above, and in view of the divestitures and other conditions agreed to by the parties in the DOJ consent decree, “the harms of the transaction have been remediated and . . . the transaction serves the public convenience and necessity.” Specifically, the FCC found potential for de minimis competitive harm from the loss of Level 3 as a last-mile facilities-based provider of business data services (BDS) in certain areas where CenturyLink operates as an incumbent local exchange carrier (LEC) and where overlapping BDS facilities lack at least one fiber-based competitor within a half mile radius. Ten BDS locations in eight states were found to cause such concern. For those localities, the merged entity has agreed not to raise BDS rates for a period of five years after closing. In terms of public interest benefits, the FCC cited “sufficient evidence in the record” to indicate that the transaction “will expand the on-net reach of the newly combined firm, resulting in a more effective and stronger competitor against larger cable and incumbent LEC competitors.” The agency also agreed that the deal “will improve the combined company’s ability to compete for and serve multilocation and other business customers, especially outside of CenturyLink’s incumbent LEC region.”
Departing from the agency’s practice over the past few years of assessing merger deals through a balance of public interest benefits and public interest harms, the FCC further emphasized that it had reviewed the merger in accordance with narrowly-tailored standards which directly relate to “the Commission’s responsibilities under the Communications Act and related statutes.” As such, the FCC affirmed that it would act only to “remedy harms that [directly] arise from the transaction.” In remarks to reporters, FCC Chairman Ajit Pai explained that the FCC’s approach to the CenturyLinkLevel 3 deal does not change traditional standards of merger review but instead provides clarity to “help the public to see that the transactional review is an occasion to carefully consider how the transaction itself impacts the public interest [and] not an opportunity to extract a range of concessions, tangentially related at best, from parties with applications in front of the Commission.” Along a similar vein, FCC Commissioner Michael O’Rielly cited concerns he has raised over the past few years “that Commission merger orders have ventured into murky—and potentially illegal—waters by applying balancing tests and imposing conditions that had no connection to the applications at hand.” However, while O’Rielly noted that, “in issuing this item, the Commission has taken the opportunity to clarify the standard of review for this and future transactions,” Commissioner Mignon Clyburn—the lone dissenter—lamented that the majority had adopted “a new standard” which replaces “the now-former public interest balancing test.” Despite voting in favor of merger approval, Commissioner Jessica Rosenworcel remarked in a partial dissent that the majority had “arbitrarily introduced a new review standard” and that such a change should have been “the subject of public notice and comment.”
Meanwhile, in a press release announcing the completion of the Level 3 purchase, CenturyLink CEO Glen Post III predicted that "our customers, from individual consumers to global enterprises, will benefit from our expanded, innovative network solutions, our complementary managed services and our highly talented workforce." As Post observed that the unified company “is now poised to offer an expanded, robust portfolio of communications solutions focused on our customers' networking and IT service needs," CenturyLink President Jeff Storey proclaimed: "Our goal is to be the world's best networking provider.”