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BT/Infonet merger: What it means to Infonet customers

Acquisition by BT will give Infonet better stability, wider European coverage

By , Network World
November 29, 2004 10:20 AM ET

Network World - Infonet stands out among a handful of top-tier global service providers as having broad geographic reach, a full suite of managed network services - including IP services - and superior customer service. What will happen to Infonet remains to be seen now that the El Segundo, Calif., company is being acquired by BT.

BT Group of London announced on Nov. 8 plans to acquire Infonet for $965 million. However, since Infonet has $390 million in cash, BT will pay only $575 million for Infonet, which is less than Infonet's annual revenue of $620 million.

Due to heavy competition and aggressive pricing in IP services, Infonet has been losing money in recent years even as it grows its revenue by double-digit amounts. Infonet has indicated that it would be cashflow-positive by the end of the current financial year.

If the deal goes through, Infonet will have the backing of a huge and profitable carrier in BT. BT officials are hoping the acquisition of Infonet will be approved by June of 2005.

The combination of these two heavyweights will affect the purchasing decisions of network managers at multinational corporations based in the U.S., Europe and Asia. In our previous newsletter, we looked at the BT/Infonet deal from BT's perspective. Today we'll explore the deal from Infonet's point of view. 

Infonet has 1,800 corporate customers including IBM and Hilton International.  Known for its global reach, Infonet has local operations in 70 countries and network access in an additional 180 countries. It has POPs in 3,000 cities.

According to Infonet and analysts, the acquisition of Infonet by BT brings three major benefits:

* Stable ownership. Infonet has changed hands several times in its 30-year-history, and it has essentially been up for sale since 2001. Hopefully, BT with its strong financial position will be a solid parent company.

* Higher profitability. Infonet will be able to take advantage of buying local access in some European cities at much lower prices from its parent BT. That should make Infonet's European operations more profitable. In particular, Infonet will benefit from BT's network assets in Germany, France, U.K. and the Netherlands. Where Infonet now buys local access from other providers, it will be able to make at-cost purchases from BT.

* Better capacity in Europe. By taking advantage of BT's sizeable fiber capacity in Europe, Infonet should be able to compete better against its closest competitor Equant, which is majority owned by France Telecom.

BT says Infonet will operate as a separate subsidiary for some time, even as the two carriers' underlying transport networks are rapidly combined for savings.

"The financial synergies we're looking for can be reached just by doing backbone [consolidation], which doesn't affect our products, services or customer-facing activities," says Jose A. Collazo, Infonet CEO. "The acquisition does not need any additional restructuring in order to be successful."

Many questions remain about how the two service providers will be combined and how well BT will execute the merger. However, industry analysts were generally positive about the idea of combining BT and Infonet.

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