Anti-trust approval clears the way for the $34B deal to close

CenturyLink received anti-trust approval from the Federal Communications Commission on Monday for its $34 billion purchase of Level 3 Communications.

CenturyLink had been steadily winding its way through the necessary state-level approvals and received Department of Justice permission in early October for the deal to proceed. The transaction has taken longer than CenturyLink originally anticipated, but is now expected to close this week.

The three Republican FCC commissioners approved the deal; Commissioner Mignon Clyburn, a Democrat, dissented. Commissioner Jessica Rosenworcel said that she supported the transaction but disagreed with Chairman Ajit Pai’s review process, saying that it had a “serious flaw. Instead of using the agency’s decades-old merger review standard, it arbitrarily introduces a new one. This departure from the traditional merger balancing test should properly be the subject of public notice and comment.” Clyburn said that the approach taken by Chairman Ajit Pai “radically alters the Commission’s long-standing merger review standards”, did not sufficiently weigh the public interest and ignored CenturyLink’s copper infrastructure in favor of only comparing fiber-to-fiber for competitive analysis, while limiting conditions to price freezes on 10 buildings across the country.

Pai said that the review process was not changed, “but we do make clear what had become increasingly hazy in recent years. … In our review, the Commission must identify any public interest harms. If there are harms, the Commission then will consider narrowly-tailored, transaction-specific conditions to remedy the harm” — rather than broader, market-based conditions that Clyburn said should have been considered.

The acquisition is expected to boost CenturyLink’s competitive position in the enterprise market; Level 3 primarily service large enterprise customers, operating a network of owned or controlled fiber with about 129,000 route miles in North America, 47,000 route miles in Latin America and Europe, the Middle East and Africa, and about 33,000 route miles of subsea fiber. CenturyLink, comparatively, has 250,000 route miles of fiber in the U.S. and another 300,000 in its international transport network. According to the FCC order, the conditions of the DOJ approval included some fiber divestments, including in the metro areas of Albuquerque, New Mexico; Boise City-Nampa, Idaho; and Tucson, Arizona, as well as rights to some of its overlapping dark fiber long-haul transport routes.

During CenturyLink’s most recent quarterly call, CEO Glen Post said that the “integration planning process is going very well” and noted that leadership changes are ahead for the combined company. Level 3 CEO Jeff Storey will become CenturyLink’s chief operating officer, and then take over as CEO in early 2019 when Post plans to retire from his position and take the role of executive chairman.

“Bringing these companies together, we’ve got a broader range of products and services and we have the international piece that we didn’t have before — a much broader international … network footprint — which should give us some advantages,” Post told investors on the call. He added that the scaling up of CenturyLink’s business with the Level 3 acquisition “[puts]us in a position to compete in a level we really didn’t get to.” He did note that CenturyLink is seeing some customers delay decisions while “waiting for companies to come together and see … what network infrastructure we’re going to utilize and the changes that the combination of these companies might offer.”

CenturyLink will report its earnings next week.

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