Interoute Goes Into Receivership

European carrier Interoute is on the verge of collapse, thanks to a snag in its restructuring plan, Light Reading has learned. The company says its failure to reach an agreement with Alcatel SA (NYSE: ALA; Paris: CGEP:PA) regarding its vendor financing might leave the company with no choice but to shut down.

Sources at the company say negotiations to restructure the company broke down in the "third step."

"Interoute successfully accomplished the first two steps, but Alcatel refused to negotiate the third step... With no other prospective purchasers, the [Interoute network] is very likely to go into hibernation and eventually collapse," an Interoute spokesman told Light Reading on Tuesday evening.

On Wednesday morning, Alcatel said that it had exercised its right to appoint a receiver -- Deloitte & Touche LLP -- to take over the administration of Interoute. This means Deloitte & Touche will run Interoute on behalf of creditors, with a view to recovering as much as possible of what they are owed. This doesn’t necessarily mean that Interoute’s assets will be sold, although that’s the most likely outcome.

Alcatel says it has “senior security” over the “totality” of Interoute’s network. In other words, it’s in the front of the queue for any proceeds that might come out of selling Interoute’s assets. It also says that any losses that might result from Interoute’s collapse won’t have a big impact on Alcatel’s bottom line. The likely loss was “largely provisioned for” in Alcatel’s third-quarter results, announced in September, a spokesperson said.

Interoute began to restructure the company several months ago, taking steps that included focusing on the business services, reducing the staff by 50 percent, and attempting to restructure vendor financing with Alcatel, says the spokesman. The spokesman says Interoute offered Alcatel €100 million in the restructuring process, or about 20 percent of its outstanding loans. Alcatel is Interoute's main contractor for network construction, and it supplies gear to the carrier as well as financing.

Other vendors supplying equipment and fiber to Interoute include Cisco Systems Inc. (Nasdaq: CSCO), Corning Inc. (NYSE: GLW), P-Cube Inc., and Sonus Networks Inc. (Nasdaq: SONS). Wireless network access provider Megabeam also has a strategic agreement in place with the carrier.

Interoute made headlines recently by buying the Ebone portion of the KPNQwest NV (Nasdaq/Amsterdam: KQIP) network, which had been shut down for a brief period. At the time of that deal, Interoute, which is majority-owned by the Sandoz Family Foundation, claimed to be debt-free (see Interoute Acquires Ebone).

Interoute also recently sold its wholesale voice operations to Wavecrest Communications Ltd. (see Wavecrest Buys Interoute's Voice). The financial terms of Interoute's deals with Ebone and Wavecrest were not disclosed.

In 2001, Interoute said it had revenues in excess of €310 million. The company advertises that it operates an 18,000 route-kilometer network with 60 metro points of presence (POPs). It has POPs in Amsterdam, Frankfurt, London, Madrid, Milan, Paris, Rome, Vienna, and Zurich.

The fact that Alcatel didn't want to renegotiate its vendor financing arrangement is not surprising, analysts say. "[The equipment vendors] are all restricting heavily the kind of vendor financing that can take place," says Craig Johnson, an independent telecom analyst in Portland, Ore. "Any of the vendors that try to finance any of the alternative carriers will find themselves in trouble."

Others in the industry aren't surprised by Interoute's plight. "I knew that they were in desperate need for some funding, but I didn't know how bad it was," says Peter Juffenernholz, the manager of technical sales support at T-Systems Inc. The impact to Interoute's customers is hard to guess at this point, he says. "I would guess that most of their customers are multi-homed… Some individual companies may get hit hard."

— Eugénie Larson, Reporter and Phil Harvey, Senior Editor, Light Reading
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borabora 12/4/2012 | 9:19:43 PM
re: Interoute Goes Into Receivership Seems like Alcatel likes to push service providers into bankruptcy. First 360networks, now Interoute...
deer_in_the_light 12/4/2012 | 9:19:41 PM
re: Interoute Goes Into Receivership I think it is the other way around, 360 almost pushed Alcatel in the red, they don't want the same to happen with Interoute
jepovic 12/4/2012 | 9:19:36 PM
re: Interoute Goes Into Receivership First GTS bought Ebone, and were among the first carriers to go bankrupt
Then KPNQwest bought Ebone, and became the biggest bankrupcy so far
Then Interoute bought Ebone, and now they're dying.
Who's next?
metroman 12/4/2012 | 9:19:34 PM
re: Interoute Goes Into Receivership I could not understand what Interoute where doing when they bought the ebone network. They already have a european footprint which cost them millions to build. When everyone was being cautious and conservative about expansion they got excited because they got something for pennies. They forgot that they would have operational costs.....

I think the ebone network will be broken down. No-one wants that kind of albatross around their neck at the moment.

The only result of this is cheaper fibre, fewer DWDM sales and a further depression of the optical market in Europe.

It seems strange also that Interoute would select Sonus at a time when they were trying to negotiate financing with ALA???? Don't Alcatel have a VOIP product? Could this not have been used. Or perhaps it was a show of power by Interoute that they could buy what they wanted and were not being held over a barrel. Interoute have never had much success with VoIP anyway as they also had a failed project with Ericsson in Spain.

dat2000 12/4/2012 | 9:19:33 PM
re: Interoute Goes Into Receivership I read with interest the collapse of Interoute, dear to my heart because I was one of those staff members which lost their job, by virtue I was part of the company sold to Wavecrest but unfortunately there is no position at Wavecrest for myself or other members of the Interoute staff, Wavecrest have so far been very good to us in the redundancy offers they are making.

The reason I am sending this e-mail is that Alcatel seem to be instrumental in the collapse of Interoute, not surprising when we used to hear the debates of charges that Alcatel raised for services they supplied, it seemed that costs were plucked from the air and passed to Interoute.

I also wonder if Alcatel having realised that Interoute were onto a winner in the world of telecommunications and decided that they would benefit from destroying Interoute. Another French act against the United Kingdom, I do not know the answer, but I guess the truth will not come out.
thekink 12/4/2012 | 9:19:31 PM
re: Interoute Goes Into Receivership Alcatels behaviour for a number of years has been appalling and shown a complete lack of business acumen (knowledge gathered from first hand experience).

And it seems the folk at Alcatel are not getting any brighter, with their decision to appoint receivers, demonstrating a complete lack of business sense (that has been all too familiar from this large, beauracratic and overly political organisation). If the article in light reading is correct and they were offered 20c in the dollar for the amounts they are owed would it not make more sense to work through that deal rather than place the business into receivership and be forced to try and sell off the network assets at current market values which are between 5c and 10c in the dollar. In such scenarios these extremely poor business decisions only lead to one winner....the receiver. The whole thing smells of the mngt of Alcatel riding their egos too far and wanting to demonstrate to Interoute that they were "man" enough to call their bluff.

I wonder if those at Alcatel who chose to back their various telecoms investments that have led to their massive write-offs still have their jobs ?
achorale 12/4/2012 | 9:19:28 PM
re: Interoute Goes Into Receivership It's amazing to read how the failure of Interoute is blamed on Alcatel, while the business plan was flawed from the start.

The problem is exactly the same as in the US: A bunch on new entrants all going after the same business and all claiming they would capture 30-40% of that market. If you added it all up, you got a 300% market. This simply had to happen

That said, of course Alcatel is bureaucratic and political and French and ....
achorale 12/4/2012 | 9:19:28 PM
re: Interoute Goes Into Receivership jepovic wrote: "First GTS bought Ebone, and were among the first carriers to go bankrupt
Then KPNQwest bought Ebone, and became the biggest bankrupcy so far
Then Interoute bought Ebone, and now they're dying.
Who's next?"

Ebone ... Ebola ...
Maybe it's a virus
Holy Grail 12/4/2012 | 9:19:27 PM
re: Interoute Goes Into Receivership
Would have been a better headline - no? I should be working for LR!

My 2 cents on all this.

Firstly, I don't like all this xenophobic stuff about the French verses the English. Anyway, I thought that Interoute was bankrolled by Sandoz family foundation who don't sound very English to me (Swiss I think).

Secondly, I think that there is more to this than simply Alcatel trashing the company for "political" reasons. Personally I always thought that the fact that senior managers at Interoute were also shareholders and investors in P-Cube and at the same time Interoute appears to be P-Cube's reference account, how much did Interoute buy and where is it now! This situation has always made me worry about Interoute.

It is just too easy to blame Alcatel and the French, I think that folks should look at the either the folks who were behind the business plan, or the folks who were supposed to implement it.

It seems to me that either the business plan was flawed to begin with, or perhaps became flawed as the business environment changed. Or the implementation of the business plan was flawed (Perhaps delayed Alcatel optical equipment contributed to this?) or perhaps it was simply dodgy management at Interoute, or maybe a bit of both.

It is just way too easy to blame Alcatel or the French, and if it turns out that others are to blame, then it would be a shame for them to get off with it and go onto bigger things!

I wonder if anyone out there knows where the real truth lies?

purna 12/4/2012 | 9:19:03 PM
re: Interoute Goes Into Receivership The I-21 demise might relate to a possible rationalization of Sandoz' investments. In addition to Interoute, Sandoz owns 17% of Tiscali (Kinsella is on the board of Tiscali, as is Victor Bischoff who was (possibly still is) a board member at I-21). Tiscali is also in the pan-European bandwidth business, as is I-21. Sandoz is also involved with LambdaNet through the LNG Holdings. At some point, Bischoff was on the board of Firstmark (the predecessor of LNG Holdings) but I have not found recent information that confirms this.

It is clear to me that in the current market, Sandoz had to rationalize its investments. By the way, on the Sandoz website, Sandoz mentions three investments into telecoms, but only Tiscali is explicitly named.
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