Level 3 (www.level3.com) is picking up Global Crossing (www.globalcrossing.com) for around $3 billion, including about $1.1 billion of debt on GC’s books and the rest in stock to GC shareholders.   The total company will (well, would have) combine 2010 revenues of $6.26 billion and adjusted EBITDA of $1.27 billion “before synergies” (i.e., job cuts, streamlining) and $1.57 billion after “expected synergies.”

Global Crossing shareholders will get 16 shares of Level 3 common stock for each share of Global Crossing common or preferred stocked owned at closing.

Putting together the two companies is expected to add $300 million to the bottom line through “synergies” and reduce capital expenditures by about $40 million.  Savings are expected to break out into 39 percent from network expenses, 49 percent from operational expense savings and 12 percent from the reduction in capital expenditures.  Costs to merge the two are expected to cost between $200 to $225 million, with 55 percent coming from operational expenses (pink slips) and 45 percent for capital expenses.

In addition, the deal is expected to add Level 3’s free cash flow, improve Level 3’s credit rating, add an expanded service portfolio since Global Crossing has been focusing on adding more services, and give the combine company better reach into the enterprise between L3’s local fiber networks and GC’s services.

Singapore Technologies Telemedia, Global Crossing’s largest shareholder, will become a significant investor in Level 3 and get seats on Level 3’s board.

Some Wall Street analysts are skeptical.  Piper Jaffray notes there were problems with Level 3’s earlier acquisitions, ranging from delays in integrating billing to “disruptions” in procurement and delayed installation times. However, “the company may have learned from its mistakes.”

It’ll also be interesting to see the regulatory comments. Level 3 does a lot of government business, so having a significant minority shareholder may cause some heartburn.

During the VoIP Users Conference (VUC) call last Friday, I put down my markers for the advance of HD Voice in North America, using the statements and actions of various service providers to provide context for my predictions.

The benchmarks I used were–

• Cablevision’s rollout of hosted HD Voice service  this summer – The leading/bleeding edge
• Global Crossing’s  one-off HD projects today, with work on an automated HD voice conferencing product rolling out within 6-9 months – Leading edge
• Verizon Business talk of HD Voice within its user base, with early adoption in 2010 and general adoption in 2011 – Conservative
• Cox Communications saying they expect HD in 2011 – Very conservative.

Looking at those four different data points, I believe that 2010 will be the year of HD Voice in the enterprise space in North America.

I’ll do a discussion of the consumer space and HD for North America tomorrow…

Or why you should care about wideband. Really.

Voice communications is entering into its third wave of evolution.  A third wave move to HD Communications represents an opportunity for carriers to redefine themselves and reassert their superiority relative to the “me too”  VoIP service providers that have driven cost down, but at the price of quality.

The First Wave: Phone 1.0

Defining the first wave of voice is easy: Phone 1.0, our good friend the PSTN/POTS.  In the beginning, standards were set, copper was pulled, and many people got phone service.  The quality of the voice call was defined between 30 KHz and 3000 KHz over a 56Kbps analog phone line and reliability was written into the DNA of generations of phone people as five nines.

It was easy to set (dictate) standards because universal voice service was driven by a government sanctioned monopoly.  But that same monopoly stifled innovation and kept prices artificially high.

The Second Wave: Convenience and Cost

The second wave of voice communication delivered convenience and lowered cost – C&C, if you prefer.  Monopolies were broken up, IP and VoIP battered their way into common wisdom and the concept of the Next Generation Network (NGN) was born.

Everyone gained convenience in the second wave, the biggest example being mobility delivered via cellular carriers.  Web sites can now be voice enabled and the tools are available for various mashups between applications and voice.

Competition and VoIP also drove down costs. In less than a decade, VoIP moved from a novelty to the primary way to move around phone calls on long distance calls, pushing down costs to where carriers now charge fractions of pennies per minute for calls.

The two pillars of the second wave were driven from the “bottom up” by consumers and innovative companies working to outmaneuver the resource-rich but innovation slow incumbent carriers – and then by incumbent carriers who saw the advantages in leveraging technology to make their own operations more efficient.

However, convenience and cost didn’t come without a price.   The sacred definitions of what a voice call over the PSTN should sound like from end-to-end got trashed – quality was lost.  Cellular networks compressed voice calls in the name of spectral efficiency and then transcoded them over to the PSTN. VoIP provided the ability to cram more calls on leased lines, but compression, transcoding, and codecs all inflicted their own small insults.

In addition, the PSTN – good old Phone 1.0 – provided an out for anyone using VoIP.  You don’t have to peer, you can route a call onto the PSTN for pennies a minute and if the call doesn’t sound good, you can always blame it on the legacy network.

The Third Wave of HD Communications:  Raising and restoring quality

Emerging today around the world, HD communications is about raising the bar for quality, while restoring quality to voice communications.   High-quality voice with the baseline G.722 wideband codec is about five times better than the stock PSTN call.   Big business already recognizes that high-quality voice is a big winner today for conference calls and international calls  Using HD, people understand what is being said better because there’s more audio information to use and less need to “process” to fill in the blanks with a foreign speaker or sorting out who is who on a conference call.

More importantly, HD is about restoring quality to end-to-end voice communications.  If a service provider is delivering high quality voice, it has to make sure that every part of the call is the best from end-to-end; there’s a lot less slack for blaming it on the other guy.  More importantly, you want “the other guy” to deliver his end of the call in HD so everyone gains the benefit, rather than descending to lowest common denominator.

The third wave will be more top-down than bottom up for two key factors.  Organizations that recognize the value of high quality voice – C-level executives, enterprises – are willing to write the checks to pay for quality.  Service providers recognize that those organizations expect a higher level of service and will pay for it – plus they want escape the downward spiral rat trap of cheap minutes.

While there are some “bottom-up” push from hosted VoIP business service providers looking to different themselves and conferencing services looking for an edge in the marketplace, the vast majority of providers who originally dove into VoIP from the “bottom” looking to snap business away from larger carriers figure they have enough to do with pennies per minute.

Ultimately, cellular carriers will move to high quality voice because people will want more out of their phones.  Availability of broadband and smartphones means that there’s little excuse to not be able to implement HD voice.

How far are we from the third wave? The trinity of handsets, service providers and customers

For the third wave of HD communications to catch on, you need to have customers who want high quality voice, handsets that support (i.e. have baked in) HD voice, and service providers who can deliver the service from end-to-end.

In Europe, the trinity already exists, with France Telecom, BT, and other European carriers signing up customers.  By the end of the year, those carriers will start exchanging HD voice calls with one another.

Within the U.S., there are a lot of islands of HD, little pockets of business hosted VoIP service providers that are not (so far) talking to each other.  However, those islands will start to be pushed to talk to Europe and to each other.

Asia moves forward with HD as carriers in Australia, Korea, and Japan all moving to implement services for consumers and businesses.

Enterprises are going to continue to be the first HD adopters.  Global Crossing is already doing one-off HD conferencing for its elite customers and is in the process of productizing HD conferencing.  Optimum Lightpath, a division of Cablevision, has taken the lead among cable companies to provide hosted HD voice for its customer base.

Verizon Business may provide the most interesting sign post for HD.  It believes that, among its customer base of large enterprises, the earlier adopters of HD will show up in 2010, with widespread demand occurring in 2011.

Bottom line

HD communication is happening, and it starting to move faster.