October 4, 2004 Broomfield, CO -- Level 3 Communications will pay $34 million in cash to acquire Sprint's wholesale dial-up Internet business, which provides dial-up access to Internet service providers throughout the United States. The transaction will permit Level 3 to expand its managed modem footprint into select secondary and tertiary markets not currently served by the Level 3 network.
Sprint plans to continue providing dial IP services to its enterprise and small-business customers as part of its remote access service product offering. Under a separate agreement, Level 3 will provide Sprint with wholesale dial IP network services in support of this service.
"Level 3 has established a uniquely strong position in the wholesale dial access market, thanks in large part to the inherent efficiency of our proprietary softswitch platform," said Sureel Choksi, president of softswitch services for Level 3. "While we recognize that the dial access business is maturing, we continue to generate attractive margins and cash flow from our managed modem operations. In addition, the underlying softswitch infrastructure used for our managed modem business supports our growing voice offerings. As such, we believe this transaction meets all of our criteria for acquisitions, and that it will create real value for our company."
"Sprint will work to ensure a smooth transition for its wholesale dial Internet customers who are included in this transaction," said Howard Janzen, president of Sprint Business Solutions. "While the wholesale dial access business is not a core focus for Sprint, this transaction also will provide a basis for Sprint to continue to offer its broad portfolio of integrated remote access services to enterprise and small-business customers."
Level 3 and Sprint have entered into a transition services agreement for the migration of customers onto the Level 3 network, which Level 3 expects to complete in mid-2005. During the migration period, a portion of the cash collected from these customers will be treated by Level 3 as a reduction in purchase price, as opposed to revenue, as required by generally accepted accounting principles. Level 3 expects the acquired business to generate positive cash flow from operations in 2005. The company plans to provide additional information regarding the transaction during its third-quarter 2004 conference call on October 27.
"Over the past two years, we have successfully acquired and integrated network assets from dial-access service providers such as McLeodUSA, Genuity and ICG," said Kevin F. Bostick, Level 3 senior vice president of softswitch services. "We're committed to providing a seamless transition for Sprint's customers, and we believe our industry-leading experience in this area will enable us to deliver the highest quality of service to these customers going forward."