Wholesale telecommunications carrier Reach took over the Asian assets of ailing United States rival Level 3 Communications yesterday for what is considered a bargain price. Reach will neither outlay cash nor assume any debt in a deal that substantially boosts its presence in North Asia. It will instead assume the undersea cable operator's capital and operating costs. Reach needs to inject US$170 million to complete Level 3's submarine cable network, which has a book value of US$436 million. The company will fund the deal internally. 'This is a significant addition to our network assets,' chief executive Alistair Grieve said. 'It is not like doubling our capacity but it does significantly impact on us, especially to the new markets of Japan, Korea and Taiwan.' Reach was set up in February as a joint venture between Pacific Century CyberWorks and Telstra, the dominant telecoms carriers in Hong Kong and Australia. It will take over Level 3's three submarine cables: one between Japan and the US; another, Tiger 1, between Hong Kong and Tokyo; and the third, Tiger 2, will eventually link South Korea and Taiwan with Tiger 1. Level 3's Asian assets also include US$90 million of working capital, comprising mainly cash and receivables, its Asian customer base, a data centre, licences and employees. The US$170 million Reach would need to spend to complete the cable network, less the US$90 million in working capital it inherited in the takeover, means it is really paying only about US$80 million to acquire the entire Asian operations of Level 3 - a fraction of the amount it would have spent building its own regional undersea cable network. Corporate development director Robert Kenny said: 'Buy is roughly one sixth of [the cost to] build, so we chose buy.' Mr Kenny expected operating costs on the acquired assets to total about US$30 million a year. Analysts said Reach was expected to have a cash flow of about US$400 million this year. 'This should be an attractive deal for Reach. Reach is virtually buying some real assets at a fire-sale price which could double their capacity,' said Stephen Leung, an analyst at CLSA. Mr Leung estimated that Reach's capacity before the acquisition was 110 gigabits per second. Level 3 could add another 160 gigabits per second. The combined capacity should save Reach spending capital on expansion over the next few years. Reach said the acquired assets would have a positive impact on earnings before interest, tax, depreciation and amortisation next year and be cash-flow positive in 2003. The deal is expected to be finalised in the first quarter next year with integration between the two operations expected to be complete in about three months. Level 3 hopes all staff will transfer to Reach.