Level 3 Communications acquired TelCove, a privately held telecommunications company, for about $1.24 billion Monday, expanding the Internet backbone company’s metropolitan and regional communications network reach.

acquired TelCove, a privately held telecommunications company, for about $1.24 billion Monday, expanding the Internet backbone company’s metropolitan and regional communications network reach.

Level 3 said the deal included $637 million in shares of its common stock, $445 million in cash, and the assumption of $155.5 million in debt.

The deal will help Level 3 increase its presence in the exploding market for broadband services and networks to carry data such as audio, video, and corporate files.

Level 3, based in Broomfield, Colorado, said the acquisition of the privately held Canonsburg, Pennsylvania-based company would provide it with a network of more than 22,000 local and long-haul route miles serving 70 markets across the eastern United States, including about 4,000 buildings on the TelCove network.

The acquisition would also add revenue to Level 3. TelCove has annual revenues of about $390 million. Level 3 reported last week that its own first-quarter 2006 revenue grew to $1.27 billion, compared to $944 million in the fourth quarter of 2005.

Shares of Level 3 rose $0.35 to $5.75 in recent trading.

Going Local

As part of the deal, Level 3 will inherit more than 300 broadband networks, which it refers to as local multipoint distribution services, and 39-gigahertz licenses covering 90 percent of the U.S. population.

Level 3 has been building up its regional and metropolitan capabilities, having closed its acquisition of Progress Telecom about a month ago and announced another acquisition, of ICG Communications, which has not yet closed. The TelCove acquisition is expected to close in the third quarter.

ICG Communications

Taken together, the acquisitions will increase Level 3’s reach to about 5,000 traffic aggregation points (such as phone company central offices and wireless providers’ switch centers) in the United States and about 5,200 globally.

The company expects the acquisition of the three companies to add between $525 million and $550 million in annual revenue. Level 3 is also setting up a Metro Services unit to manage the businesses.

The move to metropolitan services represents a return for several executives at Level 3 to the competitive local exchange market, which they used to specialize in when they ran a company called MFS.

“We are familiar with this business in our bones and we are comfortable with it,” said Level 3 CEO James Q. Crowe in a conference call.

Even at the steep price, analysts approved the deal.

“While the purchase price appears higher than the company’s previous acquisitions (4x-7x), we believe the addition of TelCove improves the company’s network breadth and increases scale,” wrote Bear Stearns analysts Steven Randall and Michael McCormack in a research note.

They believe the TelCove acquisition will also advance Level 3’s strategy of pushing its fiber network deeper into metropolitan markets to reduce its access costs, which they expect will total about $1.5 billion this year.