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Buffett joins Level 3 investors

Warren Buffett's Berkshire Hathaway and two other companies are investing $500 million in the network operator. Is a new round of consolidation in the cards for the networking industry?

Network operator Level 3 Communications is selling $500 million in debt to three institutions in a move that could presage a new round of consolidation in the networking industry.

Warren Buffett's Berkshire Hathaway will acquire $100 million of the 10-year convertible notes. Longleaf Partners Funds is acquiring $300 million of the notes. Legg Mason is buying the remaining $100 million. The notes pay 9 percent cash interest and can be converted into common stock for a $3.41 per-share fee.

The investment is unusual for Buffett, the Berkshire Hathaway chairman who has long eschewed investments in technology stocks.

Broomfield, Colo.-based Level 3 provides a range of services, such as maintaining the dial-up modem banks that America Online customers use to connect to the Internet and serving up bandwidth to corporations and other network operators over its fiber-optic network.

The company, which has spent billions of dollars on a 20,000-mile network through much of North America and parts of Europe, reaped the benefits of runaway investment in fiber optics during a late-1990s telecom boom.

Level 3 said it would use the cash raised for general corporate purposes, including "potential acquisitions relating to industry consolidation opportunities, capital expenditures and working capital."

"It is widely recognized that the telecommunications industry is going through a period of unprecedented turmoil," CEO James Crowe said Monday in a statement. "At the same time, however, the ongoing shakeout is creating extraordinary opportunities, as telecommunications companies, their network assets and customer bases become available."

Crowe, a telecommunications veteran who made a fortune building and selling other networks, has spearheaded Level 3's new strategy of combining its sprawling network with two powerhouses of software distribution--CorpSoft and Software Spectrum.

With the extra cash, Level 3 could help consolidate telecom providers, which are struggling amid excess network capacity.