Level 3 Communications Inc. (www.level3.com), a long-haul carrier’s carrier, would uproot its chief rival and expand its customer base by acquiring bankrupt operator Williams Communications Group Inc. (www.williamscommuncations.com), if its $1.1 billion bid for the bankrupt carrier is accepted.

Level 3 made the bid last week, the Wall Street Journal reported Wednesday.

The two companies are national wholesale carriers that provide Internet access, private lines and other bandwidth-centric services to telephone companies, Internet service providers and cable operators among other communications companies.

A merger between the two could help to stabilize wholesale prices, strengthen Level 3’s customer base and broaden its network, say wholesale telecom analysts. More importantly, analysts say a merger would give Broomfield, Colo.-based Level 3 a relatively inexpensive way to neutralize Williams Communications, its chief rival.

Williams Communications, which filed in April for bankruptcy protection, has posted an annual net loss of $3.8 billion, or $7.86 per share, and wrote down the value of its assets by $2.9 billion.

Analysts say the Tulsa, Okla.-based carrier owns one of the most advanced long-haul networks in the country and serves a solid base of telecom companies, including its largest customer SBC Communications Inc. (www.sbc.com). Williams Communications had 353 network services customers at the end of last year.

Meanwhile, Level 3 has made a series of shrewd moves during the past few months to avoid a liquidity crisis, including the acquistion of two software resellers, which generated a combined $2.4 billion in revenue last year. In a market troubled with bankruptcy filings and criminal investigations, Level 3 recently managed to raise $500 million in notes through investors, including billionaire Warren Buffett’s Berkshire Hathaway (www.berkshirehathaway.com).

Atlantic-ACM (www.atlantic-acm.com) senior analyst Taher Bouzayen said Level 3 definitely would improve its position in the wholesale industry if it acquired Williams Communications, but “I don’t [believe] Level 3 would be the dominant player.”

Several other carriers own market share in the wholesale industry. They include AT&T Corp. (www.att.com), Broadwing Communications Inc. (www.broadwing.com), Global Crossing Ltd. (www.globalcrossing.com), Sprint Corp. (www.sprint.com), Qwest Communications International Inc. (www.qwest.com) and WorldCom Inc. (www.worldcom.com).

However, these companies are in somewhat precarious relationships with their customers because a wholesale supplier, such as Qwest, may be competing with its customer for residential and business accounts. Level 3 and Williams Communications maintain they don’t compete with their customers.

A merger would make for a “nice fit,” said Seth Libby, a senior analyst at The Yankee Group (www.yankeegroup.com). “The customers may have reservations about Level 3,” but “they know the provider taking care of them now is also not going to be a competitor.”

If the bid is accepted, it is likely Level 3 would be picking up redundant assets, since its network is bound to overlap with Williams Communications. Still, Level 3 would be adding greater diversity and flexibility to its network, including within metropolitan markets, analysts say.

Perhaps more importantly, Level 3 would acquire a solid customer base that could help it reach a profit. Williams Communications posted $1.185 billion in revenue last year off 16 consecutive quarters of network services growth.

Analysts say they also would expect such a merger could help to stabilize wholesale prices. “I am not expecting a lot of price increases,” said Bob Hafner, vice president of networking of research firm Gartner (www.gartner.com).

He adds that he also would not expect an explosion in bandwidth demand during the next few years. “People are only slowly moving into adding additional capacity,” he said.

Many financial analysts view the wholesale model as volatile, particularly since many communications companies continue to file for bankruptcy protection. Even the largest and most financially solvent providers have lowered their annual capital expenditures and stemmed their growth plans, citing sluggish spending for IT services in the corporate sector.

By acquiring Williams Communications, Level 3 isn’t likely to amass profits overnight, and in fact, the chances for a merger are limited.

Level 3 would have to overcome a number of roadblocks, including an existing agreement between Williams Communications and its bondholders that supports a reorganization plan. The agreement would give bondholders an equity stake in the company.

Said Libby, “I think [the merger proposal] is a good thing but I don’t think it is going to happen.”