Level 3 Communications is scooping up enormous amounts of undersea fiber capacity for a fraction of what it cost to build, in a deal that should help control trans-Atlantic bandwidth prices.
"Its like getting a free car," said Cary Robinson, U.S. Bancorp Piper Jaffrays senior research analyst for communication services.
Level 3 is acquiring undersea assets from bankrupt Viatel in a deal that presents an interesting road map to other carriers seeking to strengthen their networking capacity. Viatel completed the sale of its trans-Atlantic capacity to Level 3 late last week, according to Delaware bankruptcy court filings.
Under the deal, Level 3 is buying back two fibers on the Yellow Submarine Trans-Atlantic Cable connecting London and New York, as well as 20 gigabits per second of capacity on AC-1 cable connecting the same two cities. Level 3 sold those fibers to Viatel for $94 million last year. Now it is paying $100,000 and assuming $9 million in debt, along with taking on other small financial obligations, according to court filings.
Level 3 built the Yellow Cable System and then sold most of the capacity to Global Crossing and Viatel, so getting Viatels share back means Level 3 gets trans-Atlantic capacity for free, Robinson said. Viatel owed Level 3 $9 million anyway, so this debt assumption is more like debt forgiveness, Robinson said.
"Among the newer crop of carriers, such a deal may be unique — though older carriers also have interests in different transoceanic systems," said Frank Barbetta, senior vice president of Probe Research. "We expect to see more carriers buying back assets and debt. They may be figuring they can keep facilities and prices under control to reduce competitive risks, plus it keeps them expanding."