Pipex Beefs Up With Buys

U.K. competitive operator Pipex Communications plc today announced its intention to stick around and compete with the likes of BT Group plc (NYSE: BT; London: BTA) by making two acquisitions, together worth £36 million (US$67.5 million) and signing a massive DSL wholesale deal worth up to £250 million ($469 million). (See NetScreen's Screaming IPO and Pipex Buys Bulldog Base.)

Cable and Wireless plc (NYSE: CWP) was involved in two of those transactions. First, it sold its retail and small business broadband customer base, built up while it was targeting consumers with its Bulldog business, to Pipex for just £12 million ($22.5 million) in cash. Pipex gets 110,000 customers that, on average, deliver monthly revenues of £34 ($63.75). C&W decided to exit the retail broadband sector in July this year following the introduction of a number of "free broadband" offers. (See C&W Neuters Bulldog and Free Broadband Comes to the UK.)

But the carrier has sold only the customers, having hung on to the broadband infrastructure it built out in BT's local exchanges. With that infrastructure it is serving its large corporate customers and has set itself up as a wholesaler of unbundled DSL lines. (See C&W Unveils Wholesale Strategy and C&W Stuns With Job & Customer Cuts.)

Today, Pipex became C&W's first major customer for that service, signing a five-year deal worth up to £250 million ($469 million) to use DSL capacity in up to 800 exchanges around the U.K. That capacity will supplement the up to 100 exchanges in which Pipex is already installing its own DSLAM equipment. (See Pipex Shifts to LLU and Pipex Provides Trading Update.)

Pipex is also buying IDT Corp. (NYSE: IDT)'s U.K. business, called Toucan, for £20 million ($37.5 million) in cash and £4 million ($7.5 million) in stock.

That acquisition gives Pipex a further 185,000 customers that have been bought fixed and mobile voice, and broadband, from Toucan.

Toucan had formed a mobile virtual network operator (MVNO) called ToucanMobile in partnership with T-Mobile (UK) in February 2005. Pipex will now use that MVNO relationship to offer mobile to all its customers as part of a fixed and mobile voice plus broadband package.

Following the closure of the two new acquisitions, Pipex says it will have 1.14 million customers, of which 570,000 take broadband.

Pipex has been busy buying companies in the past year, having acquired voice reseller Homecall in March and ISP Freedom to Surf in October 2005. (See Pipex Acquires Homecall and Pipex Acquires Freedom to Surf.)

In a research note issued today, Ovum Ltd. analyst Mark Main says the acquisitions are "aimed at propelling Pipex into the fast lane of U.K. consumer telecoms services," and solidify the company's position as the No. 6 player in the British broadband market. He believes the wholesale deal with C&W will enable Pipex to "focus more on developing and marketing services, and rather less on its own network expansion -- important at a time when competition in the U.K. broadband remains so fierce."

The news comes as Pipex announced its earnings for the first half of the year, and just days after the company announced a new WiMax trial in the English town of Milton Keynes that will start in December. (See Pipex Reports H1 and Pipex Trials WiMax.)

In April this year Pipex formed a joint venture called Pipex Wireless with Intel Capital to develop and provide WiMax services in major towns and cities. The JV has already completed one WiMax trial in Shakespeare's home town, Stratford-upon-Avon. (See Intel, Pipex Form JV and Pipex Touts Trial.)

Despite the flurry of activity, Pipex's share price is nearly static on the London Stock Exchange today, edging up just 0.5 percent to 10.05 pence, valuing the company at £234 million ($439 million).

— Ray Le Maistre, International News Editor, Light Reading

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