Level 3 to acquire WilTel

Consolidation of the U.S. telecommunications industry continued Monday with an approximately US$700 million agreement by Level 3 Communications Inc. to buy WilTel Communications Group LLC, which came as two much bigger deals were approved by the U.S. Federal Communications Commission.

Level 3's purchase of WilTel, a fiber-optic network operator based in Tulsa, Oklahoma, would bring together two medium-sized communications backbone companies in an industry that is boiling down to a few very big players and a number of small, specialized service providers, said Jeff Kagan, an independent telecommunications analyst in Marietta, Georgia. He expects to see more mergers as new network technologies and competition reshape the industry. On Monday, the FCC approved the mergers of SBC Communications Inc. and AT&T Corp., and of Verizon Communications Inc. and MCI Inc., with conditions.

Level 3, in Broomfield, Colorado, will pay WilTel parent Leucadia National Corp. 115 million shares of common stock and $370 million cash for the company, according to a Level 3 statement. In after-hours trading on Monday evening, Level 3's shares were trading at $2.90. At that price, the deal would be worth approximately $700 million.

The addition of WilTel's infrastructure will give Level 3 about 3,000 more route miles and allow it to reach 50 new markets. Level 3 plans to merge the two networks and migrate nearly all of WilTel's IP (Internet Protocol), optical and voice transport traffic to the combined network, its statement said.

The deal includes a contract between WilTel and SBC Communications Inc., its largest customer, that provides for the purchase of about $675 million worth of services from this year through 2009. Level 3 also would acquire Vyvx LLC, a WilTel subsidiary that gathers and distributes broadcast-quality video for the media and entertainment industry. Vyvx delivers more than 250,000 fiber and satellite video feeds per year around the world, Level 3 said.

Level 3 expects the deal to close in the first quarter of 2006. Level 3 won't acquire WilTel's headquarters building or its $60 million mortgage, or assume WilTel's outstanding debt of $358 million, it said.

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