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KPNQwest Buys Some Time

Largest European data carrier has been given a few more weeks to sell assets -- while some employees work for free

June 11, 2002

6 Min Read
KPNQwest Buys Some Time

Looks like KPNQwest NV has been granted a stay of execution.

Europe’s largest data network can stay up and running until July 1, despite not having raised adequate funds by today’s deadline, according to a statement released today by the company’s liquidators.

Trustees of the bankrupt Dutch telecom originally set a deadline for yesterday evening to collect enough customer bills to keep its network running, and then, on the verge of shutdown, extended the deadline until noon today.

While the July 1 extension isn’t expected to save KPNQwest, which laid off all of its 550 Dutch employees last week, it could buy it enough time for investment banking partner Bear Stearns & Co. Inc. to find buyers for some of its assets.

Several companies have expressed interest in buying KPNQwest, including AT&T Corp. (NYSE: T), but the company has not yet released details of any firm offers (see AT&T Bids on KPNQwest Network). The eTel Group, an Ireland-based telecom, is reportedly one of the potential bidders for KPNQwest’s Central European network.

KPNQwest has not disclosed how many of its customers still remain on its network -- or how many have successfully migrated to other service providers -- so it is difficult to say how much impact shutting down the network would have. Some reports today stated that three quarters of the company’s customers still remain on the network, but several observers say that they think the impact on customers will be minimal.

"I heard last week that most everybody was in good shape,” says Frank Dzubeck, President and CEO of Communications Network Architects, who says he’s spoken with about six of the big players. Dell Computer Corp. (Nasdaq: DELL), Hewlett-Packard Co. (NYSE: HPQ), and Nokia Corp. (NYSE: NOK) are among KPNQwest’s major customers. None of them got back to Light Reading with comments on their situation by press time. Yesterday, United Pan-Europe Communications, a Dutch cable group, announced that it had transferred its Internet services to another provider.

The company that will probably be most affected by a shutdown will be Qwest Communications International Inc. (NYSE: Q), Dzubeck says. This is because Qwest co-founded KPNQwest with KPN Telecom in 1998. It retains a 40 percent piece of the company, and it shares its customers and network resources. “It’s the parent, so it’s the problem,” Dzubeck says. “They won’t necessarily lose customers, but they will certainly lose revenue from customers.”

"We have been working on transition plans [for our customers] for the last three-to-four weeks,” Kate Varden, a Qwest spokeswoman, said yesterday, admitting that the company wasn't sure whether any customers had been moved to other networks yet. “It is possible that there will be interruptions."

While the Dutch carrier has more that 100,000 corporate customers, most of its recurring revenue comes from a small number of blue-chip multinationals, and its survival could depend on the support of as few as 200 companies. Most of the carrier’s largest clients are reportedly holding back from paying their bills, reluctant to pump money into a network that might literally be gone tomorrow.

One third of KPNQwest sales reportedly come from KPN, and, according to the carrier, its parent company has the largest outstanding bill, amounting to about €23 million (US$21.7 million). KPN, however, disputes the number. “Twenty-three is not the correct figure,” says KPN spokesman Bram Oudshoorn, conceding only that the company owes the bankrupt telecom several million euros.

“KPN is prepared to pay if the network stays intact,” he says.

While much of the company's survival will depend on large corporate customers, some of the efforts to save the network have taken on a grass-roots protest character. In Britain, Holland, and Belgium, workers decided to stay on and keep working to keep the network running last week -- even after they had been fired from their jobs.

At the KPNQwest facility in Hoeilaart in Belgium, for instance, nearly 200 people gathered in protest, according to one of the workers there. A core of more than 30 network operators, systems administrators, and others have been working for the last week without pay to keep the network running, while about 150 others have been conducting a sit-in in the facility. The network belonged to Ebone until it was taken over by KPNQwest only three months ago. The workers’ goal is to continue operations at least until all the customers on the network have had time to find alternative providers.

"We’re not going to shut down,” says Iain Tweedie-Walker, who used to be employed in KPNQwest’s customer service department at the facility. “We actually believe in our network. When we lost our jobs, we lost everything. All we are left with now is our pride.”

Tweedie-Walker along with all the other employees at the Belgian facility were first laid off by KPNQwest after the company filed for bankruptcy nearly two weeks ago, then rehired to keep the network running until a buyer was found, only to be fired again two days later when the receivers realized that there was no more money. The workers were told to unplug and go home, but they refused. “Even I don’t know how much of an impact it would have if we shut down the network," he says. “And I don’t want to pull the plug to find out.”

The KPNQwest bankruptcy (see KPNQwest for a Buyer), spurred by the company’s more than €2 billion ($1.87 billion) debt load, is expected to take a hard toll on equipment vendors such as Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT), as well.

Other carriers in the European market stand to gain a lot if the bankrupt telecom pulls the plug. Many have already started cashing in on customers scrambling to find alternative service providers. “We have had a lot of orders,” says Hugh Wilson, Group Managing Director of COLT Telecom Group PLC, which empaneled a 90-person task force to deal with migrating customers from KPNQwest right after that company filed for bankruptcy. Wilson says the carriers were the first ones to start moving their service, but that corporate customers have also started migrating over to COLT. Last week, COLT signed an alternative network supply deal with KPN (see COLT Insures KPNQwest Clients).

In addition, British Telecom (BT) (NYSE: BTY) and Sweden's Telia AB have both announced that they generously are willing to provide business continuity programs for stranded KPNQwest customers (see BT Ignite to Aid KPNQwest Orphans). Cable & Wireless (NYSE: CWP), Level 3 Communications Inc. (Nasdaq: LVLT), and WorldCom Inc. (Nasdaq: WCOM) are all also bound to inherit many of the bankrupt telecom’s customers.

"Level 3 stands to gain the most,” says David Bank, an analyst with RBC Capital Markets. “It has the most up-to-date [trans-continental] network.”

A source close to Level 3 said today that the carrier has no plans to change its strategy in Europe.

— Eugénie Larson, Reporter, Light Reading

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