Backbone Consolidation Continues – Level 3 buys Broadwing

Level 3 Communications, continuing with its strategy of gobbling up smaller/regional rivals says it is buying Broadwing Communications for about $1.4 billion in stock and cash. Level 3 will pay $8.18 of cash plus 1.3411 shares of Level 3 common stock for each share of Broadwing common stock outstanding at closing, the company says. That works out to about $744 million in cash. The deal is 5.3 times Broadwing’s 2008 EBITDA of between $200-to-$250 million, according to UBS Securities.

“The acquisition of Broadwing is consistent with both the Level 3 wholesale market strategy as well as our more recent entry into the enterprise market,” said James Q. Crowe, chief executive officer of Level 3. “We believe the combination of Level 3 and Broadwing will create value for our investors through the elimination of duplicative network and operating costs, the addition of a solid revenue base, and a further strengthening of our financial position.

In many ways, Level 3 is doubling down on its long standing belief that demand for bandwidth, both at metro and long haul level is going to keep increasing. (Well if online video boomlet is any indication, then the wind is blowing in the right direction.) Broadwing, also brings Level 3 more enterprise business. Level 3 also gets local connectivity through Broadwing’s Focal Telecom assets.

The way this consolidation is shaping up, the market is going to be left with six majors: Verizon, AT&T, Level 3, Qwest, Global Crossing and XO Communications. All these companies have national networks and NFL city footprints. (I am trying to think if I missed anyone with same network size and scope.)