The proposed combination of Level 3 and tw telecom is going to change a lot of the current rules of the road in competitive infrastructure. Here are a few thoughts as to some repercussions, feel free to add your own below in the comments:
- On Icahn and XO: I've always thought tw telecom could use XO to plug a few holes, and many have argued that Level 3 might take them out just to clean up the remaining fiber IRUs XO had on their original footprint. Both deals are probably quite a bit less likely now, so if Icahn was still waiting for the right moment to sell, it has probably passed. If not, and XO has finished reorganizing internally and is ready to rumble organically, then with Level 3 and tw possibly distracted they may get a chance to show it.
- On Zayo -- tw telecom was never really a target for Zayo, they were more of a customer. So Caruso & company probably aren't too upset, although Level 3 might be less interested in further swaths of the dark fiber tw telecom leased from Zayo late last year. Zayo has been rumored to be planning an IPO later this year. If anything, I think the greater interest in the sector this deal and reduced number of options for investors to invest in it may create could enhance such an event.
- On Sprint wireline -- With its EBITDA dwindling and two potential buyers/JV-partners now busy elsewhere, if Sprint wants to sell its wireline biz they probably have only CenturyLink to talk to now, or maybe (maybe) Windstream.
- On other metro/regional fiber acquirers -- Could this deal prompt further consolidation amongst the likes of Zayo, Lightower, FiberLight, Integra, Alpheus, Lumos, Telepacific, Earthlink, etc? While they all talk to each other all the time, the shift will probably at least get them talking again.
- Will Verizon, Comcast, or any of the big guys sit up and take notice? Actually I bet they will. But at the same time, I don't think they'll change what they are doing very much.
- Regulatory hurdles - I can't think of any way the FCC or DOJ could object to this deal. With the Comcast/TWC and AT&T/DirecTV deals in the wind, they've got enough actual issues to worry about.
- Level 3's European ambitions - These may pull back temporarily, but I don't think by much. If an opportunity like Colt became available, the lack over overlap with the US would make it doable and I think they could probably raise the money without much issue in the current environment.
Any other initial thoughts out there?