KPNQwest buys GTS's European network assets

By Rick Perera, IDG News Service |  Networking

Dutch telecommunications operator KPNQwest NV is claiming a major boost to its pan-European data and hosting services, thanks to its acquisition of the assets of troubled fiber network company Global TeleSystems Inc. (GTS).

KPNQwest will buy two GTS divisions: Ebone, a London-based data-only broadband optical and IP networking company, and GTS Central Europe, a provider of data and voice services in Central Europe, for 645 million euros (US$583 million), the Dutch company said in a statement Thursday.

KPNQwest said the acquisition will add 10 cities and three countries to its EuroRings fiber-optic backbone network, bringing the total to 60 cities in 18 European countries, and will involve taking over 48,000 existing customer accounts. The deal will likewise double the number of the company's hosting centers, which will comprise 55,000 square meters in 24 cities, as well as give KPNQwest an important presence in Central and Eastern European markets.

But one analyst was skeptical that the deal would mean any immediate benefits for users.

"A concern for the welfare of end users is not what drives these mergers going forward; it's a combination of investment bankers and CEOs (chief executive officers)," said Lars Godell of Forrester Research Inc., in Amsterdam. "I would just keep a very close eye, that would be my advice to users, to be sure they are insured against any operational disruptions."

He added, however, that in the long run a consolidation in the glutted European bandwidth market is probably for the best, since continued price wars could lead to bankruptcies and inconsistent service.

"The prices have become so low on key routes in Europe that they're not sustainable over the long term," he said. "So (the KPNQwest-GTS deal) is good news, because it takes out one player but it doesn't take out the capacity."

In a related announcement, the two major partner corporations in KPNQwest announced a deal putting U.S.-based Qwest Communications International Inc. in control of the joint venture. Koninklijke KPN NV will sell 20 million shares, or 10 percent of its stake, to Qwest and Qwest's principal shareholder, for some 101 million euros, KPN said in a statement Thursday.

A clause will give Qwest the option to acquire all or part of KPN's remaining 40 percent stake in the joint venture in March of next year.

KPN, facing a heavy debt load, has been hunting for opportunities to sell off assets. The Qwest deal also gives KPN the advantage of being able to remove some 430 million euros in KPNQwest net debt from its books.

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