CenturyLink expects to complete its acquisition of Level 3 by Wednesday this week, as the Federal Communications Commission has given the merger its final approval.
“The FCC’s approval of CenturyLink’s acquisition of Level 3 is great news and means we now have all the regulatory approvals we need to close the transaction,” CenturyLink Senior VP John Jones said in an announcement today. The merger, valued at $34 billion, previously received approvals from the US Department of Justice and regulatory bodies in more than 20 US states including California and New York.
To preserve competition in local markets, the Justice Department required CenturyLink to divest Level 3 networks in Albuquerque, Boise, and Tucson. CenturyLink will also be required to offer leases of at least 25 years for dark fiber along 30 intercity routes traversing nearly 20 states. Without such provisions, the deal would have caused a “reduction in competition [that] likely would have led to higher prices, lower quality, and reduced access for consumers,” Justice Department officials said.
CenturyLink has nearly six million Internet customers in the US, but most of its $4.1 billion in quarterly revenue comes from selling network services to businesses. The company’s revenue has been declining, and it faces several lawsuits alleging that CenturyLink customers were charged for services they didn’t order.
Level 3 sells network services to businesses only. About 76 percent of the combined company’s revenue is expected to come from business customers.
When CenturyLink announced the merger a year ago, it said that buying Level 3 would give it another 200,000 miles of fiber. CenturyLink already had a 250,000-route-mile fiber network in the US and a 300,000-route-mile international transport network. In addition to Internet access, CenturyLink offers cloud and managed hosting services for businesses.
While CenturyLink got approval from the FCC’s Republican majority, Democrat Mignon Clyburn dissented. The FCC order and Clyburn’s dissent have not yet been released. But Clyburn’s office told Ars that the FCC approval “radically alters the commission’s long-standing merger review standards.”
Clyburn also objected to the FCC relying on a competition analysis that claims a market with just one ISP can be considered “competitive” if another ISP operates less than half a mile away.
Network companies allege bad behavior
Some network operators objected to the merger. Frontier Communications alleged that “Level 3, and to a lesser extent CenturyLink, has been unreasonably refusing to pay or delaying payment on millions of dollars for services rendered by Frontier.”
After merging, the companies could “use their increased scale” to increase this tactic, Frontier said:
If left unchecked, the applicants will leverage their stronger market position as long-haul and core network providers to potentially squeeze competitors and unnecessarily drive up costs for rural broadband providers and thereby adversely affect rural broadband deployment.
Windstream made similar allegations. “Like Frontier, Windstream has found that Level 3 has been unreasonably refusing to pay or delaying payment on millions of dollars for services rendered,” Windstream told the FCC. “Level 3 disputes bills at a rate that exceeds that of other purchasers of Windstream’s services.”
CenturyLink and Level 3 argued that the merger will “bolster competition” for enterprise network services by letting them “mount a stronger challenge to larger, better capitalized competitors with greater reach.” The deal won’t affect the merging companies’ existing contractual obligations with customers, they said.