Level 3 Communications said Monday it would acquire Pennsylvania-based telephone-network company TelCove Inc. for $1.2 billion to bring its fiber-optic network into more businesses.
The deal is the biggest yet in the Broom field company’s recent buying spree. In the past six months, the company has bought, or is in the process of buying, companies in Florida, Oklahoma and Denver.
Level 3 said it would pay $637 million in stock and $445 million in cash for TelCove. It also plans to assume $155.5 million in debt. Shares of Level 3 closed up nearly 6 percent, or 32 cents, at $5.72 Monday.
Level 3, which traditionally focused on building long-distance networks for wholesale customers, is now looking to provide more fiber-optic access directly into buildings – known as “the last mile” in the industry.
Internet users are demanding more bandwidth to handle data-heavy Internet traffic such as streaming video and downloads of full-length feature films, making ownership of fiber-optic lines more lucrative.
Kevin O’Hara, president and chief operating officer at Level 3, said the acquisition will take advantage of that growth.
“I think they’re very interrelated: the applications taking off and the continued robust rates of growth and in the kinds of facilities we’ve acquired recently,” he said.
Some of the company’s customers include Internet giants Yahoo and Google.
There are more than 40 million residential and business high-speed Internet customers in the U.S., according to June figures from the Federal Communications Commission. That number is growing as companies offer phone and TV service over the Internet and lower monthly rates.
TelCove’s business – providing network lines into businesses – competes with Douglas County-based Time Warner Telecom, according to industry watchers.
Time Warner’s fiber-optic network reaches more than 6,000 buildings in metro areas around the country. With its recent purchases, Level 3 connects to about 5,000 metro buildings, O’Hara said.
“What they’ve done is validate the value of local fiber assets,” Time Warner Telecom spokesman Bob Meldrum said.
It’s unclear how the newest purchase may affect workers at both companies. Level 3 has 6,000 employees; TelCove has about 1,200, primarily on the East Coast. Level 3 said it plans to spend $25 million on employee-related costs as part of the purchase.
Staff writer Beth Potter can be reached at 303-820-1503 or bpotter@denverpost.com.
