Comcast to Buy Level 3? Someday Perhaps, But Not Soon

September 17th, 2015 by · 8 Comments

Yesterday's news that Comcast Business will take on the large enterprise market with a new division prompted an interesting report to be issued by Cowen's Colby Synesael.  He suggested that this move is another step down the path to a future where Comcast would buy a national network operator like Level 3 Communications.  

Does the idea of a Comcast purchase of Level 3 hold water?  It certainly makes a lot more sense today than it ever has, but the key thing is that this is a long term thought (as the report indicated) and not a current trading opportunity.  A lot of things have to happen before Comcast is likely to make such a move:

  • Comcast has to get comfortable with the large enterprise telecom and infrastructure markets.  It's a customer base they don't have much experience with, having launched their attack from the SMB on up.  Their reputation with such customers is minimal, unless you count the fact that they likely serve residential services to many of the executives making the decisions -- which probably isn't a net positive given their customer satisfaction levels on the consumer side.
  • They have to get used to going off net.  As the Cowen report noted, this is the first time Comcast has competed meaningfully outside its own footprint.  It's going to take some time before anyone knows how effectively they will be able to use those wholesale agreements with their cable MSO brethren.  How that coordination will operate in terms of installation times and SLAs and such in the real world won't be clear for years.
  • Once they really start scaling off-net, they have to decide they want to actually own deep infrastructure outside their own cable footprint.  That will certainly become necessary eventually if they are successful in the large enterprise market for the same reason it does for anyone else - control over both the network one delivers services over and the costs of doing so.  But that also means competing directly not just with AT&T and Verizon but with those cable brethren too.
  • The debate over network neutrality needs to reach a happier place.  It might take a little time for net neutrality protagonists to put the pieces together, but if one of the biggest eyeball networks were to buy the largest internet backbone along with not just a huge share of the fiber itself but one of the few globally scaled CDNs, the combined entity would control enough pipes to do far more than erect a toll booth.  Not that they necessarily would, but the mere potential for mischief would cause a significant regulatory fight today.
  • Comcast has to be ready to go international.  As big as Comcast is, they don't think too hard about anything outside US borders because they have never needed to.  Level 3's international presence, especially in South America and Europe, are a key piece of the company's future.

All of these are logical steps down an evolutionary path for Comcast and the industry.  And with the FCC essentially capping the size of Comcast's cable marketshare and clearly unlikely to let them expand much further in content, there aren't too many other growth paths open to them.

But each step is likely to be slowly and deliberately taken -- just look how unhurriedly Comcast took on the SMB marketplace.  It will be many years, even a decade, before this story plays out.  And a lot can happen in 5-10 years in this sector.  By then, Level 3 will also likely look a lot different than it does today, and the entire thought experiment will have to be done again in some new context.

Categories: Cable · Fiber Networks · Mergers and Acquisitions

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8 Comments So Far


  • Anonymous says:

    I bet many long-term investors wouldn’t mind a buyout. 17 years and counting and Level 3 is barely $3 presplit. Maybe time to hand over the keys to someone more capable.

  • schmuckinsurance says:

    Far from it. The stock is trading at under 17x fwd consensus earnings and an 8% fcf yield with buybacks possible as early as next year and a competitive landscape that according to Sunit has been as calm as it has ever been. Sprint is out, CTL/Q is confused and T/VZ is backing away as fast as their back pedal will take them.

    Yes, Comcast is taking this more seriously but it isn’t Comcast/TWC which would have been in 23 of the top 25 metros this is a regional company who just launched, no intl exposure and is relying on a cable wholesale cooperative to compete. This might make you ask, how is project canoe doing?

  • Anonymous says:

    I would see more of an entity like Google purchasing Level 3

    • Anonymous says:

      That’s been a rumor for about a decade. I think Google is smarter than that. Take down the IRUs needed to do your own thing… or buy a fossilized record of technology that shares virtually nothing in common and support voice and MPLS products for the rest of your life?

  • tom says:

    Comcast business channel chief used to be the channel chief at Level3 so makes even more sense

  • Anonymous says:

    why with the $16 plunge in stock price and presplit price 2.80 are we not hearing of the greatness of Jeff Storey. In the Level 3 history during horrendous market conditions and poor performance KOH was fired and Jim Crowe said to be a buffoon. Seems CEO genius is pure luck and timing, after 8/9 acquisitions and the turmoil which is inevitable the company turns a corner and all credit to Storey, now nothing but silence.

  • anonymous says:

    Level 3 has quite possibly the worst leadership in telecom. Since the acquisition of tw telecom they have learned nothing and still can’t find their way around. Any further investment into this company would be a travesty to the telecom business. Investors should do an undercover boss type situation before buying anything. It would be a good way to find out the truth about just how messed up the company is and just how far from an investment it really is.

    • Anonymous says:

      That seems a little over the top but one could argue that most shareholders (especially early ones) wished Level 3 never came to existence from an investment standpoint. 17 years and counting and LVLT is under $3 a share presplit…not good to say the least. Of course management (current & former) should shoulder some blame but I would like to think they have at least a few competent leaders.

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