CORRECTED - DEALTALK-Corporate telecom service providers eye M&A deals

(Corrects bankruptcy exit date to December 2003 from 2004, para 13)

(For more Reuters DEALTALKS, click [DEALTALK/]

*Global Crossing looking for deals

*Telcoms deals may involve Sprint, Savvis, Level 3

By Sinead Carew

NEW YORK, June 10 (Reuters) - Despite the failure of Qwest Communications International Q.N to sell its long-distance network, merger talks between U.S. corporate telecom service providers are expected to heat up as they look for savings.

Global Crossing GLBC.O Chief Executive John Legere said companies like his are looking at deals to help them compete more effectively against market leaders Verizon Communications Inc VZ.N and AT&T Inc T.N.

“There are huge synergies available in the industry as it consolidates. I believe investors will get those synergies somehow,” Legere told Reuters on Wednesday.

“Especially in North America...the synergies between any two players in the industry are somewhere between $200 million and $500 million a year, and that’s just for the tier two players,” he said in an interview.

Legere conceded it could take time for deals to materialize given limited financing opportunities, but he named a pair of companies that could take part in such consolidations: Level 3 Communications LVLT.O and Savvis Inc SVVS.O, a provider of outsourced computing and network infrastructure.

“Savvis plays in certain spaces we’d like to play in and we play in some places they don’t play in very efficiently,” Legere said. He added Global Crossing was not in a position to immediately make an acquisition.

He also predicted possible deals involving Sprint Nextel Corp S.N, which runs a long-distance network in addition to its cellphone business, as well as smaller companies such as Carl Icahn-controlled XO Communications, AboveNet Inc ABVT.N and Paetec, which was formerly known as McLeodUSA.

Sprint and Level 3 had looked into bidding for the Qwest assets, but were unwilling to pay the $2 billion-plus that Qwest wanted.

Now, Level 3 is in early-stage talks about a joint venture involving Sprint’s wired network, according to a Wednesday report on the Wall Street Journal website. The companies declined comment. [ID:nN10265238]


D.A. Davidson analyst Donna Jaegers said such a deal would help Level 3 grow and would save money for Sprint, which is focused on stemming customer losses at its mobile service.

“They don’t really need to own the long-distance network. They could make an arrangement...for Level 3 to carry their traffic and give Sprint long-distance service at a low-cost,” said Jaegers, adding that an outright sale might not be as valuable for Sprint in the current environment.

“Obviously, what we saw with the Qwest auction was that people don’t have a lot of money and can’t afford to pay much for long-distance assets,” she said.

In the meantime, dedicated enterprise providers like Global Crossing, which went bankrupt in 2002 after the telecoms bubble burst, are looking for growth wherever they can find it.

Legere has been with Global Crossing since October 2001 and has been working to build the business, which he helped restructure and see through its exit from bankruptcy protection in December 2003. Global Crossing is now roughly 70 percent owned by Singapore Technologies Telemedia Ltd.

While AT&T and Verizon win the primary telecom contracts from eight out of 10 big companies, Legere sees plenty of secondary business for smaller rivals in niches such as disaster recovery or telephone conferences.

But these companies could do better if they team up.

“Any two or three of these (secondary) players together can certainly have a better competitive advantage,” he said. “Either the No. 1 and 2 players acquire these competitors in some fashion or the competitors get together in some fashion and create a viable third.”

Legere said Global Crossing, expected to be cash flow positive on revenue of about $2.5 billion to $2.6 billion this year and would focus this year on organic growth.

“I know our business is very capable of operating exactly the way it is, so I’m not a hostage player in consolidation,” he said. “My balance sheet is very good and it can make its way through on its own.”

But rather than sitting passively he said, “We’re crazy if we don’t do back-of-the-envelope analysis about what the values would be between the different parts” even if there isn’t a “deal structure that makes sense” yet. (Reporting by Sinead Carew, editing by Leslie Gevirtz)