Industry Spotlight: Level 3’s Jack Waters on Integration and Beyond

November 19th, 2014 by · 9 Comments

waters_head_newOne of the biggest deals in internet infrastructure this year was the combination of Level 3 and tw telecom, which just closed a couple weeks ago.  Both companies had strong momentum in the enterprise markets, and once integrated the combined network and on-net building footprints will be quite formidable by any measure.  The key, therefore, is to make that happen.  With us today to talk about the integration ahead and the road beyond is Level 3’s longtime Chief Technology Officer, Jack Waters.

TR: Now that the tw telecom acquisition has closed, what will the first stages of the integration look like?  Is it all about communication and organization at first, or will you be working on the networks right away?

JW: A little bit of both really.  Talking to people and getting the organization done is definitely something that we want to do in the first month or two.  But there are some early wins with respect to network interconnection, leveraging footprint, least cost routing on voice networks, taking advantage of third party interconnect for off-net.  If somebody was paying transit fees to another provider we will be able to quickly reduce those.  There are a lot of things that happen just based on network interconnection pretty quickly.  It’s across all layers.  Then there are cases where we have products that don’t overlap but are complementary — like CDN, which tw telecom didn’t have.  As a combined company, those are services that everybody will be able to sell, almost immediately.

TR:  How will this integration be different than the ones Level 3 has worked through in the past?

JW:  Global Crossing was our best integration and will hopefully be second only to tw telecom When you think about Global Crossing, the North American network was a fairly broad intercity backbone with not a lot of metro.  tw telecom is the opposite, almost all metro network with very little intercity.  tw telecom is a great company, and it adds together really well with ours.

TR: What actually needs to get done to combine the two networks?

JW: All of the local markets will be combined over time.  It will be one Chicago, one San Francisco, one Denver.  That’s a matter of consolidating network inventory, fiber GIS information, etc.  The on-net buildings are really a true complement, less than 10% overlap between the two companies.  It’s a huge positive for us.  tw telecom had less intercity network and it was often leased from others.  We’ll be able to put all of that over the Level 3 backbone.  That’s a fairly straightforward thing to do.

TR: How will you be approaching the headcount-side of integration?

JW: With every acquisition, there is some duplication.  However, we are a growth company, and so over time there’s going to be a bigger workforce. But there’s going to be overlap, that’s part of the process.

TR: In recent years, tw telecom has been adding buildings to its network at a prodigious rate of 2000+ annually.  How will Level 3 be approaching the expansion of its combined on-net footprint?

JW: We want to keep up the growth rate of adding on-net buildings.  We want to grow at least as fast as tw telecom was growing.  Honestly, one of the aspects about local network and adding buildings is that as you have more capillarity; it’s easier and easier to add buildings.  So we think that’s going to be very strategic for Level 3 in the future.

TR: Another thing tw telecom had worked very hard on was architecting a next-gen network capable of providing instant bandwidth.  Level 3 had approached the problem differently.  How has your thinking evolved since the deal was announced and then closed?

JW: It’s very much determined by customers.  I’ve done a lot of customer councils in the last year, and asked ‘Would you rather have instant-on or a usage-tiered billing approach?’.  Both accomplish similar results, but there’s a very big mix of customers.  Some say, “I want certainty on my bill and therefore I want instant bandwidth that I can turn on and off when I want to.”  Others say “All I care about is a tiered structure so that when I use more I pay more”.  It really is a different set that wants each with a spectrum in between. The current plan is to integrate those two things together so that we can offer all options.

TR: Both companies had been working on cloud connection offerings, how will they be combined?

JW: We were both developing very similar offerings.  There are many different ways to leverage the cloud-connect infrastructure — over the public internet, private IPVPN, layer 2 Ethernet, or even wavelength services.  I think we’re going to want to have all options.  We’re definitely going to leverage what tw telecom had developed along with some of the work Level 3 standalone had done.

TR: Other than integration plans, what are you working on with your core backbone network currently?

JW: We’re upgrading our long haul optical platform right now to a new platform. It’s a 100G platform throughout our network as well as 100G IP VPN upgrades.

TR: What other new projects does Level 3 have on the drawing board that we should watch out for next year?

JW:  One really interesting project for us is SDN and NFV.  We’re looking hard at being able to take the 15,000 servers and infrastructure we use for CDN and leverage them for NFV.  We can put network functions on or adjacent to that platform, and it’s really exciting for us.  As a network operator, we’re the only one that has a CDN along with it and there are great economies of scale.  As we roll out network functions we’ll be able to do it pretty ubiquitously across our network.  It’s not geography limited.

Back when we bought the assets from Savvis, we were all convinced that in the long run we’d feel really good about buying into the CDN market.  And we do.  Now with all the great work that’s been done with NFV we’re going to be able to leverage, it looks very similar to that infrastructure from an architecture perspective.  There are incredible possibilities.

TR: Your plate seems to be pretty full, but what do you think about further M&A possibilities in North America or overseas?

JW: What’s the old saying, that you should probably swallow before you take another bite?  We’re going to make sure we do that, especially with respect to North America.  We never talk specifically about M&A, of course, but there’s lots of opportunity around the world and we’re always looking.

TR: Thank you for talking with Telecom Ramblings!

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Categories: Fiber Networks · Industry Spotlight

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9 Comments So Far

  • anon says:

    Global Crossing integration was a nightmare at the front end especially systems and efficiency or rather the lack of it. It’s hilarious that it’s seen as a good integration!

    Targets must include Sprint, Hibernia, COLT maybe

  • Dan Caruso says:

    Congrats Jack. You have been an industry leader for many years and it is great to see you getting this recognition.

    • Anonymous says:

      Very diplomatic, Dan.

      I think the reality is otherwise with the inspiring and next generation call to arms that is the “Walmart method”. Those who have worked for him know exactly what that means, and the consequences it has wrought.

      Two things happen in 2Q15. The retention pay for the top Time Warner employees gets paid, and the new car smell will have worn off by then. At that point, a lot of the brains behind TW will be really open to other gigs when they realize they are working a forgettable job for a forgettable company whose priority is a really big network, and not much else.

      Any company willing to pay top dollar to jump start or fast forward their own strategy is likely to find some willing minds, some of which we tried poaching more than once. That’s going to get easier as time goes on. Maybe even for you too, Dan!

      Massive brain drain has happened to Level 3 at least a couple times already. Having a lot of fresh, smart people report to Waters is a great way to ensure it happens again.

  • Anonymous says:

    Well done Rob. Did you happen to get a feel or did Jack give any indication of how long the integration might take?

    • Rob Powell says:

      I think we should take their stated 2/3 (or was it 3/4) done in 18 months seriously. This one isn’t about speed and cost synergies, so they have even less need to rush it than they had with GC.

  • toddforthree says:

    One really interesting project for us is SDN and NFV. We’re looking hard at being able to take the 15,000 servers and infrastructure we use for CDN and leverage them for NFV. We can put network functions on or adjacent to that platform, and it’s really exciting for us. As a network operator, we’re the only one that has a CDN along with it and there are great economies of scale. As we roll out network functions we’ll be able to do it pretty ubiquitously across our network. It’s not geography limited.”””””’

    Rob, can you or your “subscribers” elaborate on what the advantages are of SDN and NFV as it pertains to CDN?

    • Rob Powell says:

      NFV is basically scalable, manageable applications running on servers that do jobs that have always been done by boxes at the customer premises (e.g. firewall, NAT). They still need to be close to the enterprise they are serving, and they need to run on servers. In order to create such a service on a global basis, what you need is a distribution network that looks a lot like a CDN. Instead of serving files and streams, it processes data in and spits data out. But from an infrastructure perspective, it’s the same thing. So what Jack Waters was getting at is that having a fully scaled, global CDN gives them an infrastructure already in place and paid for that can be leveraged very easily for NFV-based products and services aimed at the enterprise. It’s an advantage most of the competition doesn’t really have a ready answer to. At least that’s the thought, how it pans out in reality is for the future.

  • Anonymous says:

    Gary Breauninger is the greatest asset at Level3.

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