May 2, 2006

Internet backbone operator Level 3 Communications Inc. has agreed to acquire privately held telecom company TelCove for $1.24 billion.

This acquisition will provide Level 3 more than 300 LMDS and 39 GHz licenses covering 90 percent of the U.S. population.

“The purchase of TelCove Inc. increases our ability to provide end-to-end bandwidth services to our customers,” said James Crowe, chief executive officer of Level 3.

“This additional metropolitan and regional capability will enable us to extend the network reach we offer to our customers and enable TelCove’s customers to benefit from our national network and broad suite of IP-based services.”

TelCove is a facilities-based provider of metropolitan and regional services such as transport, Internet access and voice services. TelCove serves 70 Eastern U.S. markets.

TelCove is expected this year to generate $380 to $400 million in annualized revenue.

Its revenue growth rate is expected to be 10 to12 percent and its gross margins are anticipated to be over 80 percent, according to Sunit Patel, Level 3’s chief financial officer. Integration costs are pegged at around $75 million.

“Expanding Level 3’s existing position as a metro service provider will allow us to further meet our growing customer demand,” said Kevin O’Hara, president and chief operating officer of Level 3.

“The addition of TelCove’s metro markets will enable us to increase our focus on on-net, high-margin business.

TelCove’s networks in key markets throughout the Eastern United States are complementary with Level 3’s existing infrastructure, including the networks we have recently acquired through Progress Telecom and have agreed to acquire from ICG Communications.”

Source: RCR