Interoute to Buy Euro Carrier

As the European Union expands further east, Interoute Telecommunications is to follow suit by acquiring a network that will help it capitalize on the growing demand for communications services in Central and Eastern Europe (see Europe's VOIP Scene Is Hot, Czechs Check Out Metro Ethernet, and IDC: E. Europe DSL to Explode).

The EU grew on May 1, adding a further 10 member countries, including Poland, the Czech Republic, Slovakia, Hungary, and Slovenia, to the existing 15. Now Interoute is to mirror that expansion. The pan-European operator has hit a real growth spurt of late and believes this is the right time to expand its operations to the East. (See Interoute Rides Europe's VOIP Wave , Europeans Go Crazy for Ethernet Services, and Interoute Boosts Staff by 20%.)

Who might Interoute acquire? The identity of the target has not been revealed, but clues provided by sources close to the carrier say that it is almost certainly Central European Communications Holdings BV (Cecom), a regional wholesale operator based in the Czech Republic.

A senior executive at Cecom, who requested anonymity, says the operator is "in negotiations to be acquired" following talks with a number of interested parties, and that a decision is to be made public within the next month. He wouldn't, though, comment on whether Interoute is the acquirer.

Interoute declined to respond to questions regarding the acquisition.

Cecom has a 2,100 kilometer network covering seven countries -- Austria, the Czech Republic, Germany, Hungary, Poland, Romania, and Slovakia -- and a network operations center in Prague. Interoute already has an 18,000 kilometer network spanning nine countries covering the main markets in Western Europe, and nearly 20 metro networks. The only countries where the two networks coexist are Germany and Austria.

Cecom, which already counts Interoute as one of its many carrier partners that provide extended network reach, provides bandwidth services to numerous operators and ISPs, including BT Group plc (NYSE: BTY; London: BTA), Cesky Telecom a.s., Deutsche Telekom AG (NYSE: DT), Hungary's Matáv Group, and Telekom Austria AG (NYSE: TKA; Vienna: TKA). Its revenues are unknown.

The wholesale carrier has deployed DWDM gear from Ciena Corp. (Nasdaq: CIEN), SDH switches from TTC Marconi, and IP routers from Cisco Systems Inc. (Nasdaq: CSCO) in its network.

Interoute is keen to grow through acquisitions as the market starts to pick up and before valuations start to rise. While Interoute wouldn't comment today, the carrier's head of strategy and business-critical operations, Nick McMenemy, told Light Reading recently that buying assets was the quickest way to get up and running in new markets at present, and that there are still plenty of affordable assets available in Europe following the mass build-out during the late 1990s and early 2000s.

A number of those cheap, distressed assets have been snapped up recently as carriers spot an upturn in the European services market. Interoute has bought network and equipment on the cheap before and had recently hoped to pick up the assets of German Ethernet access player LambdaNet Communications GmbH for a bargain price, but was outbid by the new owner (see Interoute Wants LamdaNet Assets, CLEC Buys LambdaNet Germany, Cogent Adds to Euro Empire, Linx Links the Baltics, and Interoute Acquires Ebone).

Interestingly, it wasn't so long ago that Interoute, which is privately funded by the Sandoz Family Foundation, was itself deemed a "distressed asset" (see Interoute's Back From the Dead).

— Ray Le Maistre, International Editor, Boardwatch