Euro Altnets Step Up M&A 617549

France's Free buys a WiMax operator, and Interoute swallows a hosting firm, Via Net.Works

September 5, 2005

5 Min Read
Euro Altnets Step Up M&A

Two more of Europe's alternative operators, Iliad (Euronext: ILD) and Interoute Telecommunications Ltd., have caught the M&A fever that has gripped the continent in the past few months. (For examples, see C&W Wins Over Energis, T-Mobile Acquires tele.ring, FT Takes on Telefónica, TI, TIM Complete Merger, Telefonica Buys Cesky Telecom, and Eurobites: So Shrink Me.)

But the two companies have two very different reasons for making their acquisitions. While Interoute wants to fatten up with more customers, more revenues, and more services, Iliad is taking an educated gamble on the future impact that WiMax will have on the service provider sector.

Iliad buys at home
French competitive carrier Iliad, best known for its fixed-line triple-play service provider Free, has branched out into the wonderful world of WiMax with the acquisition of wireless altnet Altitude Telecom (see Iliad to Buy Altitude Telecom).

Financial details weren't disclosed, but the French media, fueled by a few breakfast-time cognacs, put the value in the 10s of millions of Euros. Iliad's share price rose nearly 3 percent to €35.46 on the news.

The move adds a new dimension to Iliad, which has built itself a customer base of more than 1.3 million fixed-line broadband customers by unbundling the local loop and aggressively marketing low-cost triple-play services (see Iliad's Free Strategy Pays Off). Altitude gives it a company with a nationwide license to deliver services using WiMax, a broadband access technology that delivers high-speed, carrier-grade Ethernet data communications by wireless over city-sized distances (see WiMax Guide).

It also gives Iliad some early experience in VOIP over broadband wireless (see Altitude Telecom Maxes on Voice). Conveniently, both Free and Altitude use softswitch technology from Cirpack for their voice services (see Altitude Uses Cirpack and Free Chooses Cirpack for Voice}).

Iliad CFO Olivier Rosenfeld says Iliad made its move now because it's not certain there would be any more national WiMax licenses. "There will be others, but they might only be regional. In some ways our strategy is risk averse -- we could see WiMax is very interesting, we wanted to have that option in our technology portfolio, and we wanted to be sure of having the national license. But it's still very early for the technology, and we don't think we'll be announcing anything in the next few years."

Rosenfeld says the deal involves cash only, and, while he couldn't comment on the price, he said the French press speculation wasn't way off the mark but that the deal "won't have a massive impact on our balance sheet."

Heavy Reading senior analyst Graham Finnie says the move is "interesting, and it'll create quite a stir. This is a clear commitment to WiMax by a major European broadband service provider, and not just an incumbent operator throwing money at WiMax just for the sake of it."

He adds: "It'll be interesting to see what they do with it -- whether this is just an alternative access technology to DSL, or whether this is part of a move into mobility."

Finnie stated in his recent report on European broadband that Free's innovation has "has unnerved other operators and left all of its competitors, including France Telecom, continually running in its wake." (See HR Tracks Europe's Need for Speed.)

Interoute steps in for Via Net.Works
Only weeks after a full merger with European communications services provider Claranet Ltd. fell through, hosting and managed services specialist Via Net.Works Inc. has found a buyer for its remaining European operations (see Interoute Buys Via Net.Works Ops and Claranet Reneges).

Pan–European operator Interoute is buying Via Net.Works' operations in Germany, France, Belgium, Spain, Switzerland, and The Netherlands for $18.1 million, and will take on around 150 staff as part of the deal. Claranet had been in line to buy these businesses, but in July paid $9.3 million for some assets in the U.S., Portugal, and The Netherlands only.

The acquisition will provide a significant boost to Interoute's top line. The operator's head of strategy and business-critical operations, Nick McMenemy, says the Via Net.Works operations generate annual revenues of €45 million ($56.3 million), and while that figure is "flat, significantly it's not declining, which is good for a company that has experienced some upheaval."

He adds that, in its most recent full year accounts, Interoute recorded revenues of around €100 million, "though that's growing fast."

The Via Net.Works operations bring 12,000 new customers onto Interoute's books, says McMenemy, most of which are "medium-sized enterprises, which is one of our sweet spots at the moment. We can sell our existing services, including VOIP, to those companies, while the deal gives us a position in data center hosting. This is a good asset at the right time for us, and any acquisition that's valued at less than half of annual revenues has got to be a good deal."

Interoute has been busy in the past 12 to 18 months buying assets at bargain-basement prices, adding to its headcount, and making a concerted push into Europe's growing Ethernet services market (see Interoute Offers Multipoint Ethernet, Interoute Meshes Europe, Interoute Hires, Plans Expansion, Interoute Expands With Sonus, Interoute Buys Fiber-to-the-Pope, and Interoute Buys Euro Network).

Interoute is one of the alternative operators that has survived the downturn and emerged bullish into the post-bubble IP-focused market, but is there a sustained future for such altnets? In a keynote speech at this week's Future of Telecom – Europe 2005 at the Olympia Conference Centre in London, Dr. James Dodd, managing director of Anthem Corporate Finance and vice chairman of data service provider ETT, will draw from his past experience as a telecom analyst to predict seismic changes in the European landscape (see Light Reading to Hit London). A report on Dodd's views can be seen later this week on Light Reading.

— Ray Le Maistre, International News Editor, Light Reading

Want to get an update on the latest technologies fueling European telecom and meet with its pioneers? Check out Light Reading's The Future of Telecom – Europe 2005, to be held at the Olympia Conference Centre in London on September 7 and 8, 2005.

Hosted by Light Reading founders Peter Heywood and Stephen Saunders, The Future of Telecom – Europe 2005 is a new style of conference and exhibition covering the eight hottest technology topics in telecom.

For more information, click here.

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