Today’s agreement reached between XO and Level 3 modified two separate transactions that were announced during the past three years. The original transactions included:
A July 1998 agreement for XO to purchase 24 fibers and an empty conduit in a 16,000-mile North American intercity fiber network from Level 3 for $700 million. To date, more than 60 percent of this commitment has been purchased and paid for. Additionally, XO was also to have received tag-along rights for additional fibers as deployed in the future in certain conduits of Level 3’s North American network.
A November 2000 agreement for XO to purchase nine European metro fiber networks and a pan-European intercity fiber network from Level 3 for $148 million, as well as transatlantic capacity for an additional $15 million.
The newly signed agreement between the two companies resulted in the following changes to the original transactions:
XO and Level 3 have agreed to cancel agreements relating to the purchase of the European metro and intercity fiber networks from Level 3 and to apply the $128 million in payments that have already been made to Level 3 for the European networks to reduce the remaining amounts payable by XO under its $700 million North American intercity network commitment.
XO will become a broadband transport customer of Level 3. Initially, XO will purchase approximately $30 million worth of wavelength services on Level 3’s intercity network.
XO will give up certain contractual provisions included in its 1998 agreement with Level 3, including the tag-along rights for additional fibers as deployed in the future in certain conduits of Level 3’s North American network.
XO will purchase transatlantic capacity per the original European agreement.
XO will transfer certain transmission equipment it has purchased to Level 3, the value of which will be applied toward the purchase price of Level 3 broadband transport services.
A joint Level 3 – XO implementation team has been established to rapidly activate the wavelengths and migrate traffic from XO’s existing leased network capacity onto the new wavelength capacity obtained from Level 3.
This new agreement demonstrates the strengths of both companies and enables a long-term, mutually beneficial relationship, said Jim Crowe, Level 3’s chief executive officer. It also reflects broader trends that are reshaping the communications industry. We think that, because of the cost efficiency of the Level 3 network, companies increasingly will look to us to provide broadband transport services.
We are pleased to have reached a mutually beneficial agreement with Level 3 that will extend our relationship and yield financial advantages for both of our companies, said XO Chairman and CEO Dan Akerson. We are disappointed that our European opportunity is not going to be realized. The current market conditions, however, demand that we direct our resources and attention to the significant opportunity that exists for XO in the United States.
With (3)Link Global Wavelength, customers purchase single or multiple wavelengths of light on particular Level 3 intercity or international network fiber routes. Level 3 terminates the wavelengths at on-net customer facilities at which customers can use their existing SONET, IP, and ATM equipment, thereby reducing costs. (3)Link Global Wavelength services are available in North America, Europe, and on Level 3’s transatlantic network.
