Pan-European Network Anyone?

For sale: A Pan-European 3000km Nortel 10Gb DWDM High-Speed Telecommunications Backbone Network covering UK, France, Germany, Holland, and Belgium. This includes: LARGE amount of equipment...

Act now! This offer's good only through December 23, 2002. After that, only portions may be available, and underlying equipment will go to the highest bidder. Sorry, no interest-free monthly payments -- bank transfers only.

Such are the terms of sale for a large, high-speed pan-European network by Teleglobe, the restructured Canadian carrier cut loose by parent BCE Inc. last August (see Teleglobe & BCE: Bad Vibes Up North and Teleglobe Initiates Reorganization).

The auction includes high-speed rings linking major European cities -- Paris, Munich, Frankfurt, London, Amsterdam, and Brussels. Equipment, mainly Nortel gear, is also for sale, with additional kit from Cisco Systems Inc. (Nasdaq: CSCO), Ciena Corp. (Nasdaq: CIEN), LM Ericsson (Nasdaq: ERICD), and Marconi plc (Nasdaq/London: MONI). Support's not included, which could factor nicely into the sale price.

There's nothing new about online sales of big-ticket telecom industry detritus. Henry Butcher International Ltd., the broker handling this sale, has run several online auctions of gear from Nortel Networks Corp. (NYSE/Toronto: NT) (see Nortel Fire Sale). Its Website also has sizeable listings from Agere Systems (NYSE: AGR/A), Celestica Inc. (NYSE, Toronto: CLS), IBM Corp. (NYSE: IBM), and Sanmina-SCI Corp. (Nasdaq: SANM).

What is notable about this sale is its mystery: No one's really sure what's being sold. Apparently, it's a common problem when international carriers that based their networks on a series of indefeasible rights of use (IRUs) and other semi-tangible assets fail and are broken up for sale.

Some of the network, for instance, appears to be functioning: "Several lambdas are lit and being used to connect the DX's and Combiner nodes in two self healing rings," reads the Henry Butcher online listing.

But no one can say just who's running the live portion -- or for whom. A Teleglobe spokesman says the assets being sold online are "hardware only" and don't affect the services the carrier still has up and running in Europe as part of its remaining business.

The third-party monitor designated by the insolvency court to oversee Teleglobe sales did not answer repeated calls requesting information.

Apparently, it's fallen to Henry Butcher to figure it out. Project manager Peter Budden says "It's a network left behind... We sell all assets as left. We're still forming a picture." While he says it's "clearly a lovely network" that's generated a "fairly exciting" industry response, he hints at the difficulties of due diligence: "It's a hell of a can of worms we're unraveling."

To see why, turn back the clock: Once known as GlobeSystem, the network now on the block was part of Teleglobe's ambitious plan to conquer the European data services market during the Bubble Era (see Teleglobe activates European Ring). To build it, Teleglobe engaged in a range of transactions, including signing a US$400 million equipment contract with Nortel Networks Corp. (NYSE/Toronto: NT) (see Nortel, Teleglobe Ink $400M Deal) and buying $56 million worth of wavelengths from the former KPNQwest (see Teleglobe Launches Euro Expansion).

Fast forward to 2002: Teleglobe restructured, and according to BCE's latest quarterly press release, it started filing for debtor protection in May 2002 in "Canada, the U.S., the U.K., and elsewhere." Subsequently, it agreed with the courts to shut down and sell off what remained of its European Globesystem network, which had failed to take off, while selling its core assets to a pair of American holding companies, TenX Capital Partners and Cerberus Capital Management of New York.

Now, part of the job is finding what remains of GlobeSystem to sell.

At least one analyst says the task could be even tougher than just physically identifying farflung assets whose owners are no longer around. "There are legal issues involved when carriers buy assets like wavelengths," says Lawrence Surtees, director of telecom research at IDC Canada Ltd. The Teleglobe example is just one of many, he notes. Bankruptcy courts continue to struggle with issues such as whether IRU's are tangible assets or leaseholds.

Peter Budden soldiers on. He's trying to sell the whole network as-is through the end of this year, since its value (still unknown) would logically be greater as a whole than it would be broken into parts. But if there aren't any takers by the end of December, he'll start offering individual links and standalone networking equipment.

IDC's Surtees thinks it likely the network will be sold off in bits. "In the current European climate, it's more likely to be parceled up. You have to look at who's doing what and what they might need." The shape of the European market isn't conducive to anyone buying a big network designed for applications like hosting that haven't materialized.

Meanwhile, there's lots of non-tech stuff on the Henry B site as well: Could we interest you in a coal mine in Sydney, Nova Scotia, an aromatics refinery in Italy, or perhaps a U.K. brewery?

— Mary Jander, Senior Editor, Light Reading
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