TRENDS
By EDWARD HARROFF
These days, it seems that Europe's regional broadband market is all about the survival of the fittest. Just like in nature, Darwin's theory of natural selection is taking its toll and the financially weaker companies are being eliminated one by one. Pangea Ltd., the fully funded venture-capital, wholesale broadband carrier (see Lightwave, February 2001, page 1) has instituted insolvency proceedings, and Grant Thornton has been appointed administrator. It won't be the last European carrier to face extinction, say analysts.
Pangea joins the unfortunate club of failed broadband carriers, which includes names like iaxis and Viatel. Ovum, an information and communications technology analyst group based in London, has been sounding the alarm since the release of its study, "Regional Broadband Networks: Europe."
Europe's problem stems from an over-competitive market condition that has slammed on the brakes for short-term infrastructure investments. Sue Uglow, Ovum research director, sees "transborder telecommunications players suffering from faster-than-expected price declines and resulting lower revenue flows. In the global slump in telecom financial performance, regional operators are caught up in market turmoil and uncertainties that have curtailed 2001 network builds."
Of the 20 intra-European broadband providers, three carriers have already declared insolvency and many other younger startups are struggling to shore up quarterly operational losses. Ovum predicts that this trend is ongoing and massive short-term consolidation will continue into 2002. Uglow predicts between five and 10 larger carriers will remain in the re gional broadband business by 2006.
In Europe and across the Atlantic, the wholesale market for indefeasible rights of use (IRUs) has almost completely dried up, reports Tony Marson, Internet research director at Probe Research. "Any would-be purchasers of capacity are playing a wait-and-see game as bandwidth prices having been falling by 50%-plus per annum. There has also been a flight to quality. Therefore, any bandwidth provider with a heavy burden of debt or without deep pockets to ride out the current downturn in the market is likely to be facing the same fate as Pangea or Viatel."
Marson adds that "we believe that Pangea, Viatel, and iaxis are only the tip of the iceberg, and the European bandwidth market will face further consolidation."
From the start, Pangea's management team was confident its initial capital nest egg of $450 million would provide the muscle to shrug off competition from the dominant regional carrier, Telia International.
Pangea officially opened for wholesale business across the Nordic region in February 2001. The company reported that five to six new-entrant-carrier customers signed contracts with the company to expand their network footprints in Scandinavia. That meant Pangea expected short-term revenues valued at $50 million. Pangea also reported that market conditions had improved, with new broadband demand shifting from short-term deals toward IRU contracts.
Unfortunately for Pangea, Telia International attacked the same broadband market, launching a pricing battle after a major enhancement of its Viking network (see Lightwave, September 2000, page 1). Telia even gave wholesale deals in the sacred domestic market of Sweden.
Low network utilization remains one of the biggest problems for pan-European broadband providers. More consolidation is now inevitable, especially when broadband demand fills the recently built backbone networks across Europe.