The transaction would help reduce the pressure on prices, which have declined by as much as 30% a year in the industry, Donna Jaegers, an analyst at DA Davidson & Co., told Bloomberg News. "This is what telecom has needed for a long time," said Denver-based Jaegers, who recommends buying both stocks. "You have way too many players."

She added that the industry has been working to combat a capacity glut since Global Crossing and others invested in fiber-optic networks during the technology bubble a decade ago. Since then, technological improvements for sending traffic over the networks have increased the capacity and performance of the fiber, exacerbating the problem, Jaegers said. Both companies have struggled with debt taken on to build their networks. Global Crossing filed for bankruptcy in January 2002, the largest for a telecommunications company at the time. Level 3 avoided bankruptcy the same year with the help of billionaire Warren Buffett, who invested $500 million in the company with two partners.

The transaction will create a company with a unique capability to meet local, national and global customer requirements in a wide range of markets. By combining the strengths of each company, the new entity will offer enterprise, government, wholesale, content, and web-based customers a comprehensive portfolio of end-to-end data, video and voice solutions.

'Complementary Fit'

Jim Crowe, chief executive officer of Level 3, said the "complementary fit between the two companies' networks, service portfolios and customers is compelling." He called the combined company "a highly efficient and more extensive global platform that is well-positioned to meet the local and international needs of our customers."