Level 3 Bidding for Rival Williams Communications

Hoping to buy a competitor at a deep discount, upstart long-distance company Level 3 Communications Inc. is bidding for rival network operator Williams Communications Group, which is about to emerge from bankruptcy protection.

The move comes only two weeks after Level 3, based in Broomfield, Colo., raised $500 million from private investors, including Warren Buffett’s Berkshire Hathaway Inc., to fund acquisitions.

Level 3’s existing network has plenty of unused capacity, analysts say, but the acquisition could provide additional customers to help fill those pipes.

Level 3 executives declined to comment Wednesday on the possible deal, which Williams spokeswoman Wendy Lea confirmed without providing details.

The Wall Street Journal reported that the value of Level 3’s bid was about $650 million, less than one-tenth of the amount Tulsa, Okla.-based Williams has invested in the network since 1996.

Although the bid is low compared with the cost of building Williams’ network, which connects 125 cities around the globe, it’s high in comparison with the $750 million initially offered for insolvent Global Crossing’s more expansive fiber-optic lines. And there’s no guarantee that Level 3 would operate Williams’ network if its bid is accepted.

Level 3 Chief Executive James Crowe is positioning the company to become a consolidator at a time of industrywide weakness. When he announced the $500 million in new funding, Crowe said he wanted to buy telecommunications companies with a similar base of customers that he could move to his own network, which he claims is more efficient than other long-distance carriers.

“Buying a competitor means they could potentially decommission some of their assets,” said analyst John Gonsalves of Adventis, a management consulting firm in Boston. The deal “supports the philosophy that the last company standing wins,” he said.

Many analysts expect the long-distance business to be hit by a wave of consolidation as fierce price competition, fueled by excess capacity, drives companies into bankruptcy.

Williams and Level 3 have much in common, both in their networks and in the type of customers they target.

Their main customers are other telecommunications companies, particularly phone companies and Internet service providers. SBC Communications Inc. is one of Williams’ top customers, while Level 3’s users include America Online and MSN.

One of the main differences is that Williams’ lines reach across Canada and the Pacific Ocean, not just the U.S. and Europe. In addition, its network is equipped to carry conventional phone calls, while Level 3 is built just for data traffic.

Williams filed for bankruptcy protection April 22, announcing that it planned to continue operations and slash its debt from more than $7 billion to less than $1 billion.

These improvements made the company more attractive to would-be buyers, said analyst David Passmore of Burton Group, a network analysis firm.

As part of its reorganization, Williams has been trying to attract a minority investor that would contribute $150 million to its coffers. The Journal reported that the company was close to a deal with Leucadia National Corp., a diversified public holding company, that would raise the needed $150 million.

But July 17, Level 3 offered to buy Williams for $1.1 billion, with $450 million of that remaining in the acquired company’s coffers, the Journal reported.

Williams got its start as a subsidiary of a company that built and operated natural gas and petroleum pipelines, running fiber-optic lines through abandoned pipes.