Is It Really Time For Level 3 and Sprint?

September 18th, 2014 by · 18 Comments

There’s an article over at Investors Business Daily suggesting that Sprint may sell its wireline network business at last, and that Level 3 would be the most likely buyer. It’s not a new idea of course, but in this iteration is being suggested by Oppenheimer as a likely move. Is it finally time?

The idea would be a sale/leaseback transaction that would let Sprint focus on wireless and give Level 3 another bundle of revenue to put over its higher margin infrastructure. Sprint’s wireline business has been declining for a long time, as the company has managed it for cash and invested only what it has had to. In Q2 the division had $746M in revenue, down some 18% from Q2 of 2013, while adjusted EBITDA fell to just $35M. Of that $746M in revenue, $153M was came from providing network services to Sprint’s wireless division.

But IBD quotes Oppenheimer’s suggestion of a $4B price tag, which seems quite high unless we’re talking about a different set of assets/costs than is reported as a segment in Sprint’s filings. Level 3 may have paid some $5.7B for tw telecom, but that was for a growing, high margin enterprise business with complementary, modern, deep metro assets. Sprint’s wireline business on the other hand is older, voice-heavy, metro-light, declining, and low margin.  Given the scope of the integration process already on Level 3’s plate, I think a deal for Sprint’s wireline business would have to be at a pretty big discount to get their attention.

However, I’m not sure Level 3 is the best buyer here anymore, regardless. CenturyLink and the former Qwest network has always seemed like a decent fit, and now we have Windstream and its planned network REIT to add to the mix.  If Sprint is actually ready to make such a move, (something they should have done long ago IMHO), then either of those seem as likely to me.

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Categories: Fiber Networks · Mergers and Acquisitions · Wireless

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18 Comments So Far

  • Anonymous says:

    i know Sprint article, But where do you Zayo in the telecom landscape. I know they are big bandwidth dark fiber with large cell backhaul business but to really drive revenue how do they enter the midmarket Enterprise space ? or do they even need that. They Fiber foorprint density makes them seem capable to grow large rev , is that done with acquisition and slaes force focused in that space

  • Brent Neader says:

    Zayo is already there, i just don’t think it is getting pushed that hard, yet. They built out for us and we got a great deal on a 100mb in a single tenant building, but their fiber was very close so the build was easy. They have a fairly newish team called “premier account sales” out of Tulsa that seems to be helping put more focus on this space, and i totally agree in a lot of markets they have the metro depth to be a huge player, and get some business that probably mostly the cable MSO’s were getting from their fiber.

  • Rob says:

    I suspect CTL would invest a few billion in another telco only if:

    1) It significantly increased footprint
    2) It significantly increased long haul fiber-optic capacity
    3) It significantly increased access capability to CTL-owned data centers

    It would need to be a combination of all three above.

    Level 3 is far, far more likely to spend a few billion dollars to take another player off the playing field.

  • CarlK says:

    As the world turns, nothing is more important than individuals with access to the knowledge base ubiquitously, anytime and anywhere with speeds at the blink of an eye.

    Considering Mr. Son’s global vision, and his aggressive moves into the U.S. market with his treasure cove of spectrum embedded inside the Sprint/Clearwire combination he has already amassed, if some JV between Sprint and Level 3, truly The King of terrestrial fiber domestically, enables them to go toe to toe with The Monopolists inside the last mile, especially on the mobile front with “hand held gadgets” in the palms of hands everywhere, then such an arrangement would be The Holy Grail for citizens in the U.S. and beyond.

    Chairman Wheeler at the FCC is beginning to wholeheartedly support such ideas as he stays steadfast in identifying minimum speeds on the mobile front in opposition to The Monopolists who continue to handicap citizens everywhere who are subsidizing their overpriced freight with speeds that only the poor souls on earth would have no choice in accepting.

    Jimmy Crowe says, “BRING IT ON!”

  • andrew says:

    Just to pick nits, CTL already bought Sprint’s wireline network. The rump is what, metro & longhaul fiber and large business/government accounts?

    • Rob Powell says:

      You mean Embarq of course. That was the copper ILEC/RLEC portion. Yes, this is about the fiber, IP, data, and voice on the longhaul backbone. I call it wireline only because Sprint does in its filings.

      • davidrohde says:

        It’s funny and completely predictable that someone would say, “Didn’t someone already buy Sprint’s wireline network?” Users ran into this all the time when they’d mention Sprint to their higher-ups – “wait, didn’t get Sprint get out of that business?” Sprint completely mismanaged (or simply failed to manage) the communications regarding the spinoff of what became Embarq to leave the impression that they were only a wireless company anymore.

  • Anonymous says:

    Maybe a dumb question but If you truly want to compete with Att and VZ i think you have to have a wireless play. Why joint venture/M&A only the Landline why not the whole of sprint. Now then you would have a Level 3 powerhouse getting close to on par with ATT and VZ.

    • Rob Powell says:

      I don’t think Level 3 has ever expressed a desire to enter the consumer wireless business, and even if they did they lack the firepower by an order of magnitude or so. In competing with AT&T and Verizon they would be staying strictly in the fiber & data world.

      • Rob says:

        Both Level 3 and CTL believe their wireless play is “fiber to the tower.”

        Level 3 in particular isn’t good enough with mass market capability (making money off of a zillion tiny transactions) to be able to sell wireless.

        CTL would love to do wireless, but let’s face it; without a $10 or $20 billion investment, nobody is going to enter wireless. This gives CTL the advantage on remaining wireline business of being able to reinvest their existing wireline cashflow into strategic terrestrial based products. Verizon had to squelch their FiOS rollout because the investors wanted to only see capital going to wireless, and AT&T has a similar problem.

    • Anonymous says:

      Does OTT wireless impact that decision too projecting forward?

  • davidrohde says:

    I’ve linked to this article and made my own comments on my blog for enterprise users. Check it out, thanks.

  • Wireline Network says:

    Let me be the first to say that Sprint’s wireline network is not just long distance it is the backbone for all of Sprint’s network. Wireline transports all of the IP, VOIP, SONET, CDMA and basically every bit of data that flows through any part of their network.

    Stating that it is merely long distance makes it sound trivial. Being it is the core component that makes their network possible. I think they would (pardon my language) retarded to sell it.

  • Anonymous says:

    Did Ramblings see the news about IPC systems being sold. Amazing.

  • davidrohde says:

    It does seem counterintuitive to sell, doesn’t it? And yet Sprint has let the wireline business atrophy. We’ve seen a succession of empty suits being stood up to claim that Sprint really does want to sell wireline services to enterprises even as they were failing to respond meaningfully to RFPs. The other key here is: Sprint has essentially no local network. They sold their ILEC territories in 2006, never bought a CLEC, and essentially never built last-mile facilities of their own. Maybe that was OK in the last decade, but now it’s table stakes for any wireline competitor – either be a big ILEC or have very broad CLEC facilities, as Level 3 now does. See my further commentary here.

    • Anonymous says:

      interesting article focusing on the “larger” players – do you see smaller companies also continuing to build out in same manner as you outline for larger players?

  • Anonymous says:

    What I dont see on the article is Comcast/Time Warner mentioned. The sleeping giant in the business market place. They claim 20%+ Business service growth and I believe 4 billion in revenue. Perhaps not as significant in large enterprise yet but how long will that last, they are a powerhouse and will compete alongside ILEC/Level3 with perhaps even better fooprint than all of them. Certainly with deep pockets to enable every building and expand network as required

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