Ok, it’s been a few weeks now since Level 3 Communications and tw telecom dropped their merger bombshell on the markets. There’s now been time to absorb what it means for the two companies and the sector as a whole, and time to consider just what lies ahead for both companies.
There are finances to juggle, synergies to extract, customer experiences to maintain, product sets to reconcile, and systems to integrate. But I think the biggest challenge will be melding the two sets of people together. Why? Because no matter how good the planning is to take it on, the people in this industry have scars from the 15 tough years they battled through to get here and they are wary.
If there’s one thing I’ve learned since starting this site, it’s that network operators are actually a pretty small world. A rather large percentage of folks at both tw and Level 3 have worked for each other in the past, or for a company acquired by one or the other along the way – or even several. No matter how much better the industry is doing today, the collective experience of headcount reductions, culture clashes, reorganizations, and disappointments dating back to 2001 or so is immense and too few of the memories are of the fond variety. Everyone pretty much knows it had to happen, but everyone also knows it could have been done much better — hindsight being 20/20 and all that.
This merger is in many ways the culmination of the industry consolidation that began as the dot com bubble came crashing down. Level 3 and tw telecom are the two biggest independent survivors of the telecom nuclear winter, and soon there will be just the one. But the two companies survived by taking rather different paths, and the people that work for each today have been shaped by those paths and feel strongly about just how a network operator and service provider should be run. Level 3 did more consolidating and integrating and expanded its product set and customer focus while stubbornly digging a way out from a mountain of debt. Meanwhile, tw telecom focused its business much more tightly with more local boots on the ground and found real growth and profits in enterprise networking long before anyone else.
The biggest risk underlying the merger is not that the synergies are not there. They are. It’s not that the integration won’t be done a la Worldcom or some other mindless comparison. The network and product integrations will be hard but the industry has learned a lot about this sort of thing now, and Level3/tw will just grind that out. It’s not that the ILECs or cable providers are already too formidable to take on. Those guys have weaknesses too. And the combined assets themselves are of course unparalleled on paper.
The toughest part by far will be getting the two cultures to merge successfully. They know each other very well, as both companies have emphasized, and their markets have increasingly overlapped lately. But they have for many years approached basic market problems very differently. Layoffs aren’t nearly as big a part of this combination as for other deals in the past, perhaps, and that will help. But no matter whose best practices get implemented where, turf will be defended, changes will be resisted, arrogance will be resented, and tempers will flare. That much is a given.
I’ll be amazed if there isn’t at least a minor stumble or two along the way that is big enough to worry the markets in the short term. But the prize for a harmonious result is a huge one if Jeff Storey and his team (the combined one) can pull it off. And everyone at each company knows that too, so I do think they’ll find a way.
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Categories: Internet Backbones · Mergers and Acquisitions · Metro fiber
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Let’s hope they don’t botch this merger. They certainly messed up enough in the past to hopefully learn from it.
Do you see them trying to finalize on 10/1 to try and get a full quarter in as a combined reporting entity?
If things do go well and just for kicks let’s imagine a best case scenario they should be pumping out some serious profit and cash flow mid to late 2015 and beyond…
Great piece – I agree with every word except possibly the semantics of TWT having succeeded in the nutsy-boltsy part of “enterprise.” (They certainly have in the business market as opposed to wholesale; getting large enterprise probably awaits the success of this merger, or not.) Customers repeatedly see that the attitude, engagement, competence and internal influence of account managers and account teams is a major variable at all carriers. You accurately note that the fact that the jigsaw puzzle pieces work beautifully between L3 & TWT is good but not enough; if the line personnel clash on their assumptions based on the last 12-15 years’ experiences it still won’t fly. Fascinating to watch.
Astute observation. Even though much larger scale, I think even a theoretical ATT/VZN merger (I understand that would not actually happen) would be easier culturally, if for no other reason than that they go at most problems the same way, and chase the same lines of business.
L3/TWT were and are a different beast. Other than national wholesale type engagements, I really don’t think they ran into each other competitively as often as might be thought. Either one was in the mix of a deal or the other, not often both. This naturally evolved them far apart, in my opinion – chasing very different stories, purpose, and corporate design goals.
Frankly, TWT always had a great selling point: we are not “those guys.” Now they are. What will be the story now? They also had a very strong and loyal culture of both employees and a pretty satisfied customer base. The same cannot be said of L3.
I do not share your optimism, Rob, that everything turns out roses. The unified company survives, to be sure, but one cannot “buy” a culture and retrofit it onto the old model. Eventually what washes out of this deal are those 20,000 buildings and great fiber routes, and that’s about it. An undignified end, but definitely a traditional and expected telco mindset and result.
Amen to that brother . I saw this first hand at Worldcom.
Hey Bernie, hope all is well. Give me a call sometime to catch up. 1-800-IDK-OPEX. I think it will work from the payphone.
Sort of busy now , working on how to cut telecom cost at Oakdale Federal. Hope all is well with you.
Having been through the Broadwing/Telcove acquisition at Level 3 I can say 1 thing. This acquisition is going to be painful. A lot of people have mentioned Level 3’s ability to bring on GX went fairly smoothly. The difference is that the vast majority of the GX network was outside of the Level 3 network. Enter TW telecom and a network that is going to be plopped down on top of a current network. How will all the fiber be integrated, how will the billing platforms be combined, what about networking equipment?
This is going to be a very challenging 3 years, but if they can pull this off without churning too many customers in the meantime, they will create a very scary competitor to T and V
Aren’t they already a scary competitor to T&VZ?
Let’s hope all the integrations of the past (good and bad) will be a huge benefit then this time around. Plus, from what I can tell I more at ease with Storey overseeing the integration and running the show than KOH and Crowe.