Ok, it's been a few weeks now since Level 3 Communications and tw telecom dropped their merger bombshell on the markets. There's now been time to absorb what it means for the two companies and the sector as a whole, and time to consider just what lies ahead for both companies.
There are finances to juggle, synergies to extract, customer experiences to maintain, product sets to reconcile, and systems to integrate. But I think the biggest challenge will be melding the two sets of people together. Why? Because no matter how good the planning is to take it on, the people in this industry have scars from the 15 tough years they battled through to get here and they are wary.
If there's one thing I've learned since starting this site, it's that network operators are actually a pretty small world. A rather large percentage of folks at both tw and Level 3 have worked for each other in the past, or for a company acquired by one or the other along the way - or even several. No matter how much better the industry is doing today, the collective experience of headcount reductions, culture clashes, reorganizations, and disappointments dating back to 2001 or so is immense and too few of the memories are of the fond variety. Everyone pretty much knows it had to happen, but everyone also knows it could have been done much better -- hindsight being 20/20 and all that.
This merger is in many ways the culmination of the industry consolidation that began as the dot com bubble came crashing down. Level 3 and tw telecom are the two biggest independent survivors of the telecom nuclear winter, and soon there will be just the one. But the two companies survived by taking rather different paths, and the people that work for each today have been shaped by those paths and feel strongly about just how a network operator and service provider should be run. Level 3 did more consolidating and integrating and expanded its product set and customer focus while stubbornly digging a way out from a mountain of debt. Meanwhile, tw telecom focused its business much more tightly with more local boots on the ground and found real growth and profits in enterprise networking long before anyone else.
The biggest risk underlying the merger is not that the synergies are not there. They are. It's not that the integration won't be done a la Worldcom or some other mindless comparison. The network and product integrations will be hard but the industry has learned a lot about this sort of thing now, and Level3/tw will just grind that out. It's not that the ILECs or cable providers are already too formidable to take on. Those guys have weaknesses too. And the combined assets themselves are of course unparalleled on paper.
The toughest part by far will be getting the two cultures to merge successfully. They know each other very well, as both companies have emphasized, and their markets have increasingly overlapped lately. But they have for many years approached basic market problems very differently. Layoffs aren't nearly as big a part of this combination as for other deals in the past, perhaps, and that will help. But no matter whose best practices get implemented where, turf will be defended, changes will be resisted, arrogance will be resented, and tempers will flare. That much is a given.
I'll be amazed if there isn't at least a minor stumble or two along the way that is big enough to worry the markets in the short term. But the prize for a harmonious result is a huge one if Jeff Storey and his team (the combined one) can pull it off. And everyone at each company knows that too, so I do think they'll find a way.