**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in Q1 2014.**

Analysts agree: Level 3 Communications and tw telecom inc. share enough similarities in enough areas that their $7.3 billion deal is bound to pay off – that is, if the companies’ executives manage the transaction properly. If that happens, then the two providers stand to create a fiber behemoth serving organizations all the way from the SMB to the enterprise, throughout the country, thanks to the combination of their mutual strengths. Still, the biggest question for partners is, how will this transaction impact their sales? For the most part, industry analysts say, for the better.

‘A Stronger Channel’ But ‘Fewer Sales Support Resources’

Among partners, the looming question remains, how will a Level 3-tw telecom union impact the channel? Analysts predict generally positive outcomes – and those expectations mesh with those of Channel Partners readers: As of 11:30 a.m. ET on Tuesday, more than three-quarters (76 percent) polled agreed that the deal seems like a good fit and will be more positive than negative for the channel. Just 5 percent of respondents voted that the transaction “won’t do the channel any favors.”

On the whole, analysts say to expect Level 3 to expand its partner program using the best of tw telecom’s practices, with hiccups along the way.

For example, said Fedor Smith, president of ATLANTIC-ACM, while the merger will allow agents and resellers to sell more services into more areas through one provider, “there are likely to be some channel conflict challenges during the integration.”

Plus, smaller agents and VARs might fall through the cracks, said Ryan Brock, senior vice president, worldwide SMB cloud and channels at AMI-Partners.

“Some fringe partners in the lower program tiers may get left behind,” he said. Yet, he said, “the established, higher value partners stand to gain through access to additional (potentially higher-margin) solutions and bundles, and additional layers of support and enablement.”

The takeaway, said Brock, is this: “I believe that the combined channel investment will increase, as they recognize the need to appease and retain their top partners.”

Craig Clausen, executive vice president of New Paradigm Resources Group (NPRG), agreed.

“Level 3 does not have one of the strongest channel programs in the industry, while tw telecom’s is generally considered to be average or slightly above,” he said. “Level 3 understands the importance of the indirect channel to its future growth, but the company hasn’t been able to execute on certain areas critical to channel partners (such as portal tools and training programs). We expect that this merger will result in a stronger channel program from the combined entity.”

Still, the consolidation of the two providers’ programs probably will include some cutbacks. That’s the forecast from Steve Hilton, co-founder of consultancy MachNation, who has studied and worked in the channel for years.

“I’d expect fewer channel sales support resources from the operators,” he said. “I’d expect the eventual consolidation of OSS, which will impact the online tools (CRM, deal registration, trouble ticketing, dispatch, etc.) that partners use to interact with the operators.”

‘A Logical Next Step’

The Level 3-tw telecom pairing represents a “complementary partnership, and a logical next step in Level 3’s strategic focus on the business and enterprise market,” said Smith. That’s because Level 3 has increased its traction among midmarket and large enterprise customers in recent quarters, but has not done so in the lower-mid and SMB sectors. However, tw telecom has thrived with those customers, Smith said, so combining the two providers’ footprint makes sense.

Brock agreed.

“In telecom services, scale and customer reach are the mantra and the larger players clearly believe that it is much more viable to acquire it than to build it,” he said.

Issues might arise in the integration process. Smith called those upcoming efforts “a large undertaking.” For one thing, tw telecom has been working on SDN-enabled dynamic bandwidth, and it’s hard to tell how efforts will progress under Level 3, given that provider’s past problems with acquisitions and ensuing network performance.

“One strength that enables this [SDN] functionality is the relative continuity of tw telecom’s network,” Smith explained. “Providing these services consistently across Level 3’s network could prove challenging.”

That’s because, while Level 3 (and tw telecom) scored well in ATLANTIC-ACM’s Business Connectivity Report Card customer feedback research for areas including network performance, Level 3’s history with other purchases could come back to haunt it.

“Hopefully, integration complications won’t affect [network performance] as it did for Level 3 many years ago after the Broadwing and other acquisitions,” Smith said.

In addition, look for tw telecom’s $1.6 billion of debt to increase the financial pressure on Level 3.

Nonetheless, the two companies share enough strengths that all should go well, said Clausen.

“Level 3 and tw telecom are similar enough in a number of regards that an exceptionally strong foundation on which solid future growth occurs, but the companies are also different enough so that that future growth isn’t simply linear; rather, the combined entity will benefit from the combination of ideas and approaches to the evolving communications technology market shared between the two companies, more so than we’d expect to find in most mergers,” he said.

Going Head-to-Head With AT&T, Verizon

Overall, Level 3, with tw telecom under its belt, will be better able to compete with AT&T Inc. and Verizon Communications Inc., said ATLANTIC-ACM’s Smith. At the same time, the expanded Level 3 will gain better access to smaller customers, who are the bread and butter of a number of channel partners. And that could be good news for agents and VARs.

“If Level 3 continues its highly competitive pricing strategy, this merger could create new challenges for carriers in legacy tw telecom markets,” Smith said.

Along those lines, Hilton said the price of business and wholesale services is unlikely to rise due to the consolidation of Level 3 and tw telecom.

“There is still plenty of competition in communication services in business and wholesale markets,” he said. “However, there might be specific communication routes that would be impacted by the lessening of competition.”

In terms of size, the combined Level 3 and tw telecom claim 5.2 percent, leapfrogging Windstream to become the fourth-largest player behind AT&T, Verizon and CenturyLink who, combined, hold 59.8 percent of market share, Smith said. When considering just advanced services, such as Ethernet, VoIP, IP VPN and dedicated Internet access, Level 3-tw telecom together hold 8.9 percent of the market, making them the third-largest behind AT&T and Verizon, according to ATLANTIC-ACM figures.

In other words, said NPRG’s Clausen, “the companies’ respective networks will provide the combined company with a significantly more robust fiber network that reaches a significant number of commercial office buildings on a coast-to-coast basis.”

 Read about agents’ reactions to the Level 3-tw telecom merger.