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
tocks 12/4/2012 | 9:15:09 PM
re: Interoute Goes Into Receivership I was referring to "thekink"
tocks 12/4/2012 | 9:15:09 PM
re: Interoute Goes Into Receivership Not a very anonymous user name to those in the know !!
broadbandboy 12/4/2012 | 9:18:51 PM
re: Interoute Goes Into Receivership I was at the official launch of I-21 in London a few years ago with John Mittens and Bill Lee.

The plan was exciting, but I thought they were trying to go "a petabit too far."

vantive_66 12/4/2012 | 9:18:52 PM
re: Interoute Goes Into Receivership All,

The only thing what was wrong with Ebone was that higher management from the companies who bought it couldn't keep the money in. GTS management couldn't do this, nor could KPNQwest management. The network was one of the best in the world. A very high availibility and professionalism.

The reason why Ebone was not saved from going bankrupt was that the banks stopped in delivering Ebone credits to pay their providers. Ebone was left with a debt of USD 2 billion. When the banks gave us that money, Ebone would continue and would be a great danger for big carriers like Deutsche Telecom or Worldcom. These had larger debts like USD 80 billion (Dtag) and USD 40 billion (Worldcom) with the same banks. When Ebone received their USD 2 billion, the banks might have lost the USD 120 billion from the other companies because Ebone would have been a strong competitor in Telecom Land. This is the official version of the currators.

Now they all want to buy Ebone because these companies have a shitty network and want a good one on top. The Ebone network is there and for sale. Cheap and without a single dollar of debt !

And Alcatel is in a very difficult possition theirselves, so it is normal they draw a line. They might endanger their own company by supporting another without the financial insurances. Who can blame them ?

All the people who worked to get the Ebone network what it was, may be very proud of it. Don't forget that 40 people of Operations kept the network operational 1 month after the official bankruptcy. For free. They were running shifts of 12 hours, 7/7 days. Before you have any critics on Ebone, think if you would do that for your company ?!

I was one of them ...

And now I joined another major company in Telecom Land. And the one and only reason why they hired me : I came from Ebone ...

And all the knowledge and the good spirit from Ebone will continue to live. Other operators : beware, because Ebone will never die !

thekink 12/4/2012 | 9:19:02 PM
re: Interoute Goes Into Receivership Holy grail wonders whether anyone is close to the truth.

Well I was very close to the heart of what has taken place over the last few years between Interoute and Alcatel and have been away from it for a period of time and as a result feel I can speak with authority and a level of independence. So any questions you want answered, please ask.

In reponse to other follow up messages, I was not bagging Alcatel because of their nationality, if you look at my response I was trying to communicate my surprise at the business decisions they have taken recently and over a period of time. From my personal experience, they do not have the personnel that have any level of business acumen and whilst you may level the same form of critiscism at Interoute, without entrepenuers there is never any positive/ evolutionary change in the market place for any form of goods and service (anyone for good old fashion PTT service ?).

toxic_fumes 12/4/2012 | 9:19:02 PM
re: Interoute Goes Into Receivership As an ex-Ebone employee, I would like to put the issue straight. Firstly, Interoute did NOT purchase Ebone, they only bought a small part of it.
Secondly, there was nothing wrong with GTS/Ebone, it was a good company to work for and people who I am proud to say I had some association with, we were let down badly by the banks and finance houses.
Please if you make statements, check your facts. If you have nothing constructive to say, best not say it at all.
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.
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?

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
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 ?
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.
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.

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?
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
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...
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