Analysts have dismissed speculation that Comcast could swoop in and outbid CenturyLink for Level 3 Communications.
“We believe Comcast is likely to have other uses of cash near term (spectrum purchase, wireless) and is unlikely to get involved,” said Barclays’ Amir Rozwadowski, in a note to investors.
“Incrementally, Comcast will likely be cautious in its approach towards M&A, especially involving wireline assets or even edge service providers like Level 3, given the degree and context of pushback from regulators to the TWC deal. While we can see the long term value of an asset like Level 3 for Comcast, we believe the company may want to use its regulatory capital for transactions that are likely more important for its competitive positioning in the last mile,” Rozwadowski added.
Deutsche Bank’s Bryan Kraft also told investors that a competing bid from Comcast is unlikely, and that the MSO is more likely to grow its enterprise business “organically.”
Last week, CenturyLink confirmed that it will pay $34 billion to acquire Level 3. Comcast has dabbled in fiber network buildouts alongside its DOCSIS 3.1 network efforts. Speculation started in July that Comcast might actually be a Level 3 suitor, as well, with the MSO anxious to compete with fiber-based telecoms in the enterprise sector.
Comcast reported $280 million in business services revenue growth in 2015, with most of that coming from small and mid-sized business. “But we’re seeing healthy growth from mid-size businesses right now, and we’re getting a number of enterprise deals in,” Comcast Cable CEO Neil Smit told investors two weeks ago during Comcast’s third-quarter earnings call. “We’ve got a large financial institution with about 2,000 locations, large healthcare provider with about 1,000 locations and a retail provider with about 2,000 locations. So, we’re starting to see the enterprise side of the business grow.”
“We’ve stated in the past that cable MSO’s including Comcast are likely to increasingly shift more focus towards the enterprise segment and as part of this would want a nationwide fiber footprint, a broad product set, and a geographically dispersed sales force (all things that Level 3 would offer),” said Cowan and Company’s Gregory Williams in a note to investors.
With that said, in light of the current environment which includes 1) the ongoing AT&T/TW deal, which may push cable to feel compelled to buy a mobile company, and 2) the current political environment which could make cable buying Level 3 a ‘statement’ deal for the FCC/DOJ, as well as the price CTL is paying which benefits from synergies that cable likely can’t match, we believe Level 3 is likely perceived more as a ‘want to’ than a ‘have to’ for cable and we consequently have little conviction in the likelihood of an overbid.”