The deal will combine two unprofitable companies with total revenue of
$6.26 billion as of last year, and cut annualized capital spending by
about $40 million, according to the statement. It will also help reduce
the pressure on prices, which have declined by as much as 30 percent a
year in the industry, said Donna Jaegers, an analyst at DA Davidson &
Co.
�This is what telecom has needed for a long time,� said Denver-based
Jaegers, who recommends buying both stocks. �You have way too many
players.�
combining the companies will allow them to maximize efficeinecies by the
elimination
of overlapping functions, hopefully paving the way to profitability.
We're *admitting* in public that the result will be to make prices go
up for
customers? Wow... Justice is going to have a field day with that.
Cheers,
-- jra
I don't think it means so much that prices will go up, just that it will slow the decline.
But having said that, it appears that we are in for a spate of inflation generally and the prices of everything are going to rise fairly quickly, starting about now.
That would be across the economy as a whole and not anything specific to the telecommunications sector.
I seem to recall several dot-com-era CxOs spending very lavishly on themselves, or getting their employers to give them large 'loans' that were never paid back. Ken Lay, Jeff Skilling, Bernie Ebbers, Gary Winnick, Joe Nacchio, etc...
The story of former Tyco CEO Dennis Kozlowski spending $2 million on his wife's 40th birthday party springs to mind... Tyco paid for half of it, under the guise of the party being a shareholder meeting...
Oh, trust me. I fully believe it will make prices go up. Anytime you
take a major competitor out of the ball game, the negotiations shift
towards center mass. That's just the way things go.
The only saving grace may be that it opens the door for one of the
little guys to get a bit bigger and start drawing cash away from the
behemoths out there.
I seem to recall several dot-com-era CxOs spending very lavishly on themselves, or getting their employers to give them large 'loans' that were never paid back. Ken Lay, Jeff Skilling, Bernie Ebbers, Gary Winnick, Joe Nacchio, etc...
This is what I was thinking of - Awesome photo too.
The story of former Tyco CEO Dennis Kozlowski spending $2 million on his wife's 40th birthday party springs to mind... Tyco paid for half of it, under the guise of the party being a shareholder meeting...
Wish I could have been a fly on the wall during the meeting when someone suggested that idea.
"Way too many players ..." means that the telecom marketplace is good for the consumer, with competition keeping prices low. Many network users feel that prices are still way too high, particularly for high speed circuits and dark fiber, areas in which Level 3 and Global Crossing have specialized.
Cute theory, but unfortunately this has no basis in reality. Users can
"feel" any way they'd like, but the truth is that the current market
prices for wholesale IP transit, in which Level 3 and Global Crossing
specialize, are far below cost and are impossible for any carrier to
sustain long term. I'm not saying that either L3 or GX runs a completely
optimal network (infact I'd say that GX may well be a case study in
failure to do so :P), but a simple analysis of the costs of routers,
colo, power, crossconnects, optical gear, etc, makes it abundantly clear
that the current "rush to the bottom" pricing cannot possibly be
supported even under optimal conditions and ignoring other overhead. The
situation isn't significantly different for high-speed longhaul
capacity, the revenue these these circuits generate at current market
prices is barely offsetting their capex on the optical gear at this
point. Anyone who told you that there is a cash cow in this particular
market is woefully mistaken, any serious money to be had is coming from
enterprise customers who can only be reached via unique metro assets.
I have no doubt that there will be some modest reduction in competition
following the acquisition, but I honestly don't think it is anything to
get too worried about. Unlike L3's previous acquisitions (such as
Wiltel, Telcove, Looking Glass, etc), it isn't really possible for them
to "disappear" the assets from the market following the purchase. GX's
longhaul fiber footprint is mostly still owned and operated by Qwest,
they were never a big player in IRU dark sales to begin with, and they
don't have much in the way of metro fiber assets to speak of. The two
companies also not really in any danger of being able to stop the
current tide of market transit prices, since this are being driven by
many other companies. And L3 has already learned what happens to their
market share when they try to alter market pricing by themselves, which
is what led to their current Comcast debacle in the first place.
The best case scenario that I see here is L3 being able to provide some
technical leadership to significantly reduce GX's overhead, and
hopefully fix some of their other problem areas too. But personally I'm
not convinced that L3 is the technical or market force they used to be,
and thus I question whether they'll be able to get it right themselves.
Remember, it taks a LOT of work for a big telco to put all the pieces in
place correctly, and any mistakes on their part will open the door for
smaller carriers to show off the advantages of being nimble. If there is
any significant reduction in competition that comes to either carrier,
it will do exactly that. Infact, I encourage them to try, it will
probably be good for my business.
If I were a large tier-2 with SFI to one, but not both, of Level3 and
GBLX, I would see this acquisition as an opportunity to squeeze
peering out of the other network, or eventual combination of both, in
trade for not stirring the pot with regulators. Perhaps AS3356 will
carry AS6939 IPv6 routes soon, etc.
