CPUC will decide if CenturyLink can buy Level 3

by Steve Blum • , , , ,

CenturyLink and Level 3 have finally admitted that they need to do more than just throw a note through the window in order to get the California Public Utilities Commission’s approval of their pending transaction. The deal was done last October, but the two companies waited five months to formally apply for permission to transfer Level 3’s California telephone certifications to CenturyLink.

During that time, they tried to convince CPUC staff that it was a purely administrative matter that could be handled with a perfunctory paper shuffle. But both CPUC staff and consumer groups pushed back, with the result that a formal review is now required, nominally with the same level of regulatory scrutiny that was involved in Frontier Communication’s purchase of Verizon’s California telephone (and broadband) systems, and Charter’s takeover of Time Warner Cable and Bright House.

In the application, the companies dance around the central question, which is what happens to the Californian broadband market when the number of long haul fiber operators on key routes shrinks from four to three. Since CenturyLink is buying Level 3, it also means that California’s major supplier of industrial-class Internet bandwidth and dark fiber will be taken over by an old school telephone company with a retail mindset. Just like AT&T and Verizon, the other two major middle mile fiber owners in the state.

Most of the application is taken up with the usual legal recitals of ownership, interests and good intentions, but the companies managed to slip some whoppers in too. Such as claiming that “the proposed transfer will not diminish competition in the state in any way”. It will, since it will be more difficult and expensive for competitive broadband providers and other wholesale-level users to get the direct connections to Internet backbones that they need. Instead, they’ll be pushed into the incumbent telco business model of selling Internet bandwidth by the bit.

Californian review of the CenturyLink/Level 3 deal is vital, even more so since the Federal Communications Commission backed off from overseeing the wholesale telecoms segment. As the CPUC correctly ruled last year, California’s broadband market is highly concentrated – in other words, a monopoly or nearly so – and pointed to restricted middle mile access as a prime reason.

The CPUC should reject CenturyLink’s request to buy Level 3.

Application of CenturyLink and Level 3 for CPUC approval
Exhibits to the application, unfortunately with all the good stuff blacked out