Comments to FCC on CenturyLink/Level 3 a Good Sign for Approval, Gallant Says

Lack of strong opposition to CenturyLink's planned buy of Level 3 is "encouraging" for the deal's prospects, Cowen analyst Paul Gallant wrote investors Wednesday. He noted Incompas, which counts Level 3 as a member, "raised several concerns but also seemed open to merger approval with meaningful conditions" (see 1701240037). "We view these developments as positive for deal approval," he wrote. His key takeaways were: there are fewer opponents to CenturyLink/Level 3 than to last year's Verizon/XO, which was approved; additional parties may still file; business data service (BDS) "is the key issue"; and possible pricing and structural remedies may help close the deal. "We believe the DOJ's and FCC's main focus will be on the office buildings where CenturyLink-Level 3 would be 2-to-1 merger. CenturyLink says there are a total of 100 such buildings," he wrote. Although Incompas says that understates the competitive overlap, Gallant doesn't view BDS overlap as a deal-killer: "DOJ and FCC have approved past ILEC-CLEC mergers (CenturyLink-Qwest, Verizon-MCI, SBC-AT&T) in which the remedy for lost BDS competition was either price caps for BDS service or divestiture of facilities in discrete buildings. Either way, we believe the deal will be approved because: A) The deal appears to have at least some pro-competitive effects (e.g. CenturyLink-Level 3 as a stronger competitor to the larger AT&T and Verizon for multi-location customers); and B) Conditions like price caps and divestitures are well-established remedies in comparable mergers."