We normally do not discuss telecom mergers here, viewing them as regrettable but unavoidable byproducts of the current business environment. However, the pending CenturyLink acquisition of Level 3 caught our eye this week with the potentially troubling issues raised by Frontier and Windstream. 

The carriers claim that as the acquisition gets closer to FCC approval, Level 3 has unreasonably refused to pay or delayed payment on millions of dollars for services rendered and initiated a significant number of rate increases that are inconsistent with the company’s past practices.  As Windstream notes in a March 10, 2017 letter to the FCC:

Windstream agrees with Frontier that the Commission should adopt conditions to ensure that Level 3 and the combined entity cannot engage in unreasonable bill payment practices.  In addition, the Commission should adopt conditions to prevent Level 3 and the combined entity from using their market power in the business data services market to engage in extortionate price increases. 

Until now, the pending CenturyLink acquisition of Level 3 has received little publicity and even less opposition. It was initiated in a December 12, 2016, joint application to the FCC in which the ILEC and CLEC claimed that the acquisition was in the public interest:

Approval of the proposed Transaction will enable the Applicants to combine their complementary networks to offer customers of enterprise services a broader range of on-net services and solutions than they currently can obtain from the Applicants individually, reduce both Applicants’ dependence on leased fiber facilities, and, by enhancing the combined company’s reach and financial profile, strengthen its ability to invest and compete for the long term. In doing so, the proposed Transaction will allow the combined company not only to provide better service and a fuller suite of solutions to its base of enterprise customers, but also to serve as a stronger competitor in the retail segment to AT&T, Verizon, and others, including large cable companies that have dramatically expanded their core offerings in recent years to compete successfully for these customers. (Consolidated Application To Transfer Control Of Domestic And International Section 214 Authorizations, filed December 12, 2016 at Exhibit B, p. 1.).

Initially, opposition to the acquisition came primarily from the carrier association INCOMPAS, which conversely asserted that the transaction would hurt enterprise completion.   

With this transaction, CenturyLink will see further consolidation of its market power, especially in its incumbent region. This transaction would eliminate choice of last-mile facilities-based providers for enterprise customers at many buildings and enable the combined company to more easily execute price squeezes to push other retail enterprise business solution providers out of the market, including for multi-location customers that need enterprise business solutions at locations that fall at least within part of the CenturyLink incumbent region. (WC Docket 14-403, Comments of INCOMPAS, filed January 23, 2017 at pp 2-3.).

Despite this opposition, it was widely expected that, especially with the new FCC, the transaction would quickly be approved.  Now, with the imposition of conditions, Frontier and Windstream want to ensure the combined entity pays for services rendered.  Frontier states:

[We are] concerned that these problems will only get worse if the transaction is approved and, certainly if it is approved without conditions.  The combined company will be able to use its substantially increased scale and control over critical core network and long-haul facilities to further delay and refuse to pay amounts duly owed and otherwise leverage its market power (Docket 16-403, Frontier Reply Comments, filed February 7, 2017 at p. 4).

Specifically, Frontier requests the FCC to impose the following conditions:

(1) Require that CenturyLink and Level 3 be current on all balances greater than 90 days;

(2) Require that Applicants timely resolve all disputes within 180 days; and

(3) Establish a specific Commission contact for complaints about the Applicants disputing an unreasonable amount of bills and taking an excessive amount of time to respond. (id., pp. 5-6).

While here we take no formal position on the merits of this merger, it is certainly not in the interest of enterprise customers if the combined entity is disputing and/or not paying for legitimate services rendered.  Moreover, it boggles the mind that Level 3 is possibly putting the transition in jeopardy by its alleged payment delays. The complaining carriers theorize that it is doing so to meet promises made to investors that it would meet certain financial targets before and after the merger. Regardless of the possible motive, it is not sufficient justification for its apparent actions. Therefore, if these allegations are true, the Commission would be wise to require payment conditions as part of its still likely approval of this transaction.

By Andy Regitsky, CCMI