Cable & Wireless' $625 million deal to acquire MCI's Internet backbone service unit catapults the UK telco into the Web's major league. But there are questions over whether it has a big enough name among US Internet service providers to survive in this cut-throat market.
Last week Cable & Wireless beat rival bidders for MCI's unit, to gain a huge stepping stone into the Internet routing business. It will inherit a business with projected annual turnover of $220 million plus around 50 staff. Cable & Wireless will also gain contracts with 1,300 ISPs in 76 countries, as well as 22 domestic nodes, 15,000 interconnection ports, more than 40 ongoing peering agreements, and equipment dedicated to supporting the network.
MCI will retain the fibre between the equipment and continue to provide non-Internet services to its ISP customers. It has also agreed to provide the basic telecomms services Cable & Wireless will need in the first two years as it establishes its presence.
"This is a damn good deal," said one senior industry player. "It now becomes the only non US backbone provider. But if I were an ISP in the US I would be asking 'who is Cable & Wireless?'."
The emergence of Cable & Wireless as the winning bidder was a surprise since the company had never expressed major interest in the Internet. It is currently embroiled in divesting those international interests that it neither owns nor controls.
Said David Neil, a vice president at the Gartner Group: "It isn't clear what Cable & Wireless' strategy is or what it is really focusing on at the moment. If it has a strategy it certainly hasn't articulated it to the market."
Cable & Wireless does have an operation in the US selling telecomms services to small and medium sized organisations. This unit posted turnover of #708 million last year or 10 per cent of group turnover, and is the company's third largest region outside the UK, after Hong Kong and the Caribbean.
The company also runs an IP backbone of its own in the US called the Cable & Wireless Internet Exchange, based in Virginia. This will be merged into the new business overtime, said a company representative.
The deal has also aroused speculation among Cable & Wireless investors in the US that the company could now be a acquisition target for AT&T. The US telco's chief previously said his organisation would be interested in bidding for MCI's unit.
One investor said: "Cable & Wireless seems to be an excellent takeover targer for AT&T or one of the major telecomms players. This would give it instant access to the UK and the ever growing China market."
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