North American Fiber Woes Head to Europe

• By theWHIR.com , February 20, 2002

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North American Fiber Woes Head to EuropeBy Adam Eisner, theWHIR.com

February 20, 2002 - Both companies and investors alike have been burned over the past months by the well-publicized financial troubles of North American telcos and network carriers.  And if recent events are any indication, it would appear the problem is spreading to Europe as well.Many North American companies that have built or invested in global fiber optic networks have buckled recently under the pressure of developing networks that have gone largely unused. When the capacity intially built by companies like Global Crossing filled up quickly, a number of other providers also decided to build fiber optic networks. This resulted in a short-term flood of capacity that has driven prices downward and many North American companies in to serious financial trouble. The same now appears to be happening in Europe. Last week, Pan-European telecom Carrier1 said it had initiated proceedings to wind up operations, shortly after warning it had been forced to suspend U.S. voice operations because its suppliers were not being paid. Like many North American network providers, Carrier1 could not withstand the financial pressure of building a global fiber optic network, only to be left with excess capacity.Of course, companies aren't the only victims in situations like these - so are shareholders, as Carrier1 demonstrated all too clearly last week. "The Company expects that its subsidiaries will file for similar or insolvency proceedings in their respective jurisdictions shortly," Carrier1 said in a statement. "The Company expects in due course that it will be liquidated but does not expect there to be any recovery for its shareholders."Other companies currently under the microscope include Jazztel, a carrier that provides metro area networks to Spanish and Portuguese markets. Jazztel came under fire recently after being downgraded by Moody's because of its high debt level. Energis and Fibernet have also been under scrutiny because of profit warnings in recent weeks.   Even companies that do not appear to be in any immediate trouble seem to be on the defensive - just like North America. European telco KPNQwest, for example, released a statement defending its accounting practices last week in light of recent concerns surrounding "cashless transactions" that have seen carriers swap capacity in order to boost their bottom line. In an effort "to correct any misconceptions that may have arisen from recent press reports", the company released a statement reassuring investors that any capacity it sold to other carriers "were cash sales at fair market value." North American communications firm Level 3 released a similar statement defending its practices at approximately the same time. Much like in North America, carrier bankruptcies are also creating opportunities for other firms to purchase network assets at rock-bottom prices. 360Networks' UK assets, for example, were purchased this week by European carrier Telia. The purchase, which adds an additional 1,500 kilometers the company's 40,000 kilometers of lit fiber, "represents a few per cent of Telia International Carriers planned investments for 2002," the company said in a release. 360Networks was a Canadian carrier that filed for bankruptcy last year.If historical precedent is any indication, the bad news for European fiber companies and telcos is only beginning. The continent's Internet communications industry typically trails North America by anywhere from nine months to two years, so there are likely more rough patches ahead.

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