Level 3: Will Acquisition Rumors Come True?

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 |  Includes: GOOG, LVLT, S
by: Jeremy Richards

Level 3 (NYSE:LVLT) had some good news this week. Oppenheimer said yesterday, "LVLT will benefit from explosive growth of wireless data traffic."

Oppenheimer notes:

LVLT to provide 4G wireless connectivity in major US markets.

LVLT announced that the company will provide Clearwire Communications (CLWR) with network transport services as part of their deployment of 4G WiMax services in major metropolitan markets across the United States. We view positively the company's focus on supplying the wireless space with transport services, given the solid secular growth of wireless data. We believe that tower companies and backhaul providers are best positioned to benefit from the explosive growth of wireless data.

LVLT said late Monday that it has been selected by SevenOne Intermedia GmbH, part of Europe's second largest broadcasting group, ProSiebenSat.1 Group, for its content delivery network (CDN) services. Size of the win was not disclosed. LVLT said it will provide its services to both live and on-demand video content to viewers in Germany, Austria, and Switzerland. traffic.

Rumors

Would it make sense for Google (NASDAQ:GOOG) to buy LVLT? How much would GOOG save on its bandwidth costs if it picked up Level 3? YouTube reportedly burns through a million dollars a month in bandwidth costs. I believe the acquisition of LVLT would give GOOG the inside track on the fiber optics needed for the infastructure to build the next generation of the net, which of course will be live TV both public and private delivered on demand of all forms with reports, forms and everything else.

Is the Sprint (NYSE:S) and LVLT rumor still possible? The Wall Street Journal cited unnamed sources familiar with the matter who said the two companies have held talks about a joint venture. LVLT and S are considering a joint venture that could combine the company's long distance businesses. A joint venture between S and LVLT would create a more formidable competitor to AT&T (NYSE:T) and Verizon (NYSE:VZ) in the markets for carrying data across the Internet.

I believe it would a good move for both S and LVLT to get together. LVLT has a network with approximately 54,000 intercity fiber miles and 27,000 metro fiber miles.

Telecom Ramblings Rob Powell noted:

S longhaul infrastructure at the fiber level is old (some of it is even direct-buried, no conduit) and they would have to spend huge amounts of cash to upgrade it. They haven’t done so and given their other troubles these days they probably can’t. Instead they have run the division for cash, capex as a percentage of revenues has been around the 5% level and revenues have stagnated. But Sprint Wireline still has almost $6B in revenue and an impressive customer list, a top IP backbone by any measure, and remains financially pretty healthy. So rather than do it alone, they are thinking of throwing it into a joint venture with LVLT who has the most modern infrastructure at the fiber level. This would allow the combined entity consolidate nearly $10B worth of revenue onto it.

The chart is looking good with very impressive money flow on both the 3 month and 1 month by daily charts. LVLT seems to have started a new uptrend. Watch for a breakout above the $1.70 area. A short squeeze could send LVLT above $2.

Disclosure: Long LVLT and GOOG; not holding any other stocks mentioned