CenturyLink to Buy Level 3?

CenturyLink is rumored to be in talks to buy Level 3. Put me in the camp of those who like this deal for CenturyLink.

I believe that the future for residential services is a dumb pipe to the home with the subscriber deciding what to do with their bandwidth. Netflix, Amazon Prime, IP based security systems, smart utility services, etc, etc. If you own that dumb pipe to the customer's home - you own that subscriber.

The same will be true to a lesser degree for larger enterprise, municipal and other big bandwidth users. This deal will give CenturyLink more infrastructure to connect to these larger subscribers. A much better move than using funds to buy zombie brands like Yahoo! or content creators like Time Warner.

In fact - I wouldn't be surprised if Verizon backed out of the Yahoo! deal, using the undisclosed hack as justification, and instead used the funds that would have gone to that deal to also bid on Level 3.

Carl Ichan and Netflix

Looks like Carl Ichan is convinced that Netflix is in play. Ichan converted his options into actual stock - a move that will allow him to better leverage his just under 10% stake in the company in any proxy battles.

The article mentions Amazon, Microsoft and Verizon as potential suitors. I've said it before that of those three Verizon makes the most sense since they are trying to build a Netflix-light with their Redbox Instant venture as it is. Why not spend $4 billion for the real thing?

I would also mention a company like Level 3 as a potential suitor. Reed Hastings the CEO wants to keep Netflix independent. A Level 3 ownership could allow Netflix to be a wholly-owned subsidiary and at the same time give Hastings that independence as long as he uses Level 3 pipes.

It looks to me that Ichan's strategy is to force Hastings to find a suitor of his liking to prevent a takeover being forced upon him. Either way Ichan will win. Either way - Netflix is in play.

Why Netflix Might Be an Attractive Target

Very interesting report that Netflix now accounts for 33% of the residential downstream peak traffic in North America. Nobody else is even close.

I speculated that one of the reasons that Verizon may have started the joint venture with Redbox was to insure that whenever possible the Redbox Instant traffic would be traveling on Verizon pipes. What would 33% of the peak residential traffic in North America be worth to Verizon? Would wrapping up that traffic and the revenue that it entails be worth a little north of $4 billion (what it would probably take to buy Netflix)?

I've seen a lot of articles talking about who would be interested in actually buying Netflix and all of them name the same usual suspects - Amazon, Verizon, Google, AT&T but I think there could be others for whom the purchase might make more sense.

Think of a company like Level 3 Communications. They could buy Neflix and tell Reed Hastings to just keep running the company as he has done with one little stipulation - all traffic on Level 3 pipes whenever possible. In turn Level 3 could increase Netflix's profitability just by making network usage more efficient.

Or think of a company like Akamai. They could also drive profits by making Netflix's network usage more efficient while at the same time using Netflix's traffic to get better deals for existing CDN business. It would be a very bold move by Akamai but it very well could be worth it.

If Netflix does get purchased - I'm guessing it won't be by one of the usual suspects (except maybe Verizon).