Level 3 Agrees to Purchase Global Crossing

Richard A Steenbergen ras at e-gerbil.net
Mon Apr 11 23:24:18 UTC 2011

On Mon, Apr 11, 2011 at 03:49:43PM -0700, Holmes,David A wrote:
> "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. :)

Richard A Steenbergen <ras at e-gerbil.net>       http://www.e-gerbil.net/ras
GPG Key ID: 0xF8B12CBC (7535 7F59 8204 ED1F CC1C 53AF 4C41 5ECA F8B1 2CBC)

More information about the NANOG mailing list