Carrier vows to support customers during transition to Gores Technology Group.
Cable & Wireless has ended more than a year of uncertainty regarding the future of its U.S. business, but observers are mixed over what the news means for customers.?
Cable & Wireless has ended more than a year of uncertainty regarding the future of its U.S. business, but observers are mixed over what the news means for customers.
Last week, the company announced that it was filing voluntary petitions for Chapter 11 reorganization as part of a deal to sell the bulk of its assets to Gores Technology Group, an investment firm that specializes in revitalizing distressed technology companies. C&W executives say maintaining service to customers is their top priority during the transition.
“The good news is they found a buyer for the business, which means customers are not going to be in limbo, not knowing if there is a future and if service is going to dwindle,” says Brownlee Thomas, a telecom analyst at Forrester Research.
But Kate Gerwig, principal analyst of network services at Current Analysis, isn’t as optimistic. She questions who will ultimately be running the C&W network and says the Chapter 11 process allows for other buyers to bid for C&W’s assets.
“I don’t see that customers have a lot more certainty than they did before,” she says.
A spokesman for C&W says employees will be transferred in the sale and will continue to run the C&W network.
The sale is valued at $125 million and is subject to bankruptcy court approval and C&W meeting certain business targets. It ends a tough chapter for the service provider that entered the U.S. infrastructure market with a bang when it bought MCI’s IP backbone in 1998.
The carrier then spent more than $1 billion in 2001 with the hopes of becoming the leading Internet infrastructure provider in the U.S.
It bought content delivery network service provider Digital Island and the assets of Exodus Communications. The Exodus purchase vaulted C&W into the forefront of the Web hosting market.
C&W could never turn a profit
But the carrier, which is based in the U.K., never could turn a profit on the U.S. business that company executives said was losing more than $1 million per day.
In June, the company announced that it planned to completely exit the U.S. market, but gave few details about how that would take place. About 5,000 customers were left wondering about the company’s fate.
For example, National Semiconductor in Santa Clara had been reviewing alternative Web hosting providers, but Phil Gibson, vice president of Web business and sales automation at the company, says the plan now is to stay with C&W.
“We have extended our contract with C&W through our fiscal year, which ends in May,” Gibson says. “If they continue to perform at today’s levels and remain competitive with price and service reviews in March/April, I have no reason to look for an alternative.”
Most analysts are applauding C&W for making a quick exit from the stagnate U.S. market at a cost far below what had been expected. The company says it expects the cost of exiting the U.S., including providing up to $100 million in debtor-in-possession financing to help keep U.S. operations going during the transition, should not exceed about $500 million.
John Dubel, CEO of Cable & Wireless America, says he expects the sale to be completed by the end of February.
Dubel and Eric Simonsen, chief restructuring officer and CFO, recently joined C&W America to help lead the service provider through the financial restructuring. Both are principals of corporate restructuring firm AlixPartners and have guided companies such as WorldCom through financial realignment.
