With about $920 million in cash available, Level 3 Communications may not be finished yet with a buying spree it started last fall, two analysts say.
AboveNet Inc. of White Plains, N.Y., and XO Communications of Res ton, Va., with a Denver office, appear to be in the Broomfield fiber-optic network company’s sights.
That’s because AboveNet and XO are the two largest remaining data- network providers in the country, said Joe Laszlow, a senior broadband and wireless analyst at Jupiter Research.
“They’d be a very logical sort of match to me, both of them, if Level 3’s goal from a strategy perspective is to increase capacity and eliminate competitors,” Laszlow said. “The market is consolidating.”
Spokesmen from Above Net and XO declined to comment.
Similar midlevel data-network companies such as 360Networks in Seattle; Cogent Communications in Washington, D.C.; and Yipes Communications in San Francisco could also be targeted by Level 3, said Eric Schoonover, a senior analyst at Telegeography in Washington.
“XO and AboveNet offer significant and relatively dense fiber networks where Level 3 doesn’t have dense fiber networks,” Schoonover said.
Dense fiber networks are heavily concentrated networks often in metro areas or business parks.
Level 3 spokesman Chris Hardman declined to discuss the company’s acquisition strategy.
But chief executive Jim Crowe hinted at what Level 3 is doing in May at the company’s annual meeting when he said consumers who want to download videos from the Internet will drive up the need for network bandwidth.
“Today, the backbone capacity simply would not support the introduction of these services,” Crowe said at the time. “Significant new investment is going to be required, and we believe that Level 3 is best positioned to most efficiently deploy that capacity.”
Level 3 expects consumers will want to watch TV over the Internet, which requires 450 times the bandwidth of a regular Web browsing session, according to an investor presentation by Level 3 chief financial officer Sunit Patel last week.
Buying up existing companies to add new infrastructure is cheaper than building new network capacity, said Rick Battle, a telecommunication-industry analyst in Virginia.
“The fact of the matter is, the cost to build is so high that it’s cheaper to buy a company than to build your own,” Battle said.
In a similar bandwidth play, Qwest in Denver said in May it would buy fiber-optic network operator OnFiber Communications of Austin, Texas, for $107 million. Qwest said the purchase will help it deliver faster Internet service to companies in more cities.
Level 3 could have about $920 million to $930 million available after it finishes buying Looking Glass Networks in Oak Brook, Ill., and TelCove Inc. in Philadelphia, based on Securities and Exchange Commission filings. Level 3 also has bought three other fiber-network operators around the country.
Level 3 calls itself an “Internet backbone” provider, because it focuses on moving Internet- based data. It sells to Web heavyweights such as Yahoo and America Online, among others.
Staff writer Beth Potter can be reached at 303-820-1503 or bpotter@denverpost.com.
