Jun 14, 2002 : The webhost industry: week review

📅 June 14, 2002 - It was another interesting week in Web hosting, as a number of assets changed hands and a selection of telecommunications providers made news that seemed to carry a great deal of significance to the future of the Industry.
Active in the headlines again this week were the woes of bankrupt European network operator KPNQwest, which led a handful of telcos in making big decisions based on big financial shortcomings.
A lot of attention was focused on KPNQwest this week, as the company had announced the previous week that it would take its network offline if it was unable to successfully collect enough cash from debtors to maintain operations by the end of business on Monday.
That deadline was extended to Tuesday, and on Wednesday the company announced that it would be able to keep its network online until July of this year, easing the pressure on customers forced to find a new service on short notice and opening the floor to more speculation about the sale of the company's assets.
On Thursday, reports circulated that suggested KPNQwest was very close to coming to an agreement about the sale of its Eastern European business to a consortium of investors led by Lehman Brothers Holdings Inc. Sources cited in the report said the deal could be closed as early as next week.
KPNQwest's assets are drawing a lot of interest, as dozens of parties are said to have shown interest in acquiring all or part of the company. KPNQwest's creditors reportedly set a deadline sometime on Thursday for interested buyers to communicate their offers to Bear Stearns, the investment bank overseeing the asset sales.
Several other telecommunications firms made slightly less significant headlines this week as they dealt with their own financial troubles in somewhat less dramatic fashion.
Broadband communications and Web hosting provider XO Communications announced on Monday that it had rejected an effort by investors Forstmann Little & Co. and Telefonos de Mexico to rescind an offer made last November to each contribute $400 million to the purchase of approximately 80 percent of the firm.
"We do not believe that the investors have any right to terminate their obligations unilaterally, and see no reason to believe that the closing conditions cannot be satisfied," said a statement released by XO, which added that it has made progress on the development of a plan that would come into effect should the Forstman Little/TELMEX agreement fail to close.
Canadian telecommunications company Telus said, also on Monday, that it would offer early retirement and voluntary departure packages to approximately 11,000 employees in its Telus Communications and Telus Mobility divisions in Alberta and British Columbia.
The announcement followed a decision by the Canadian Radio-television and Telecommunications Commission that restricted the ability of telecommunications firms to raise residential telephone rates.
On Thursday, communications infrastructure provider Metromedia Fiber Network announced that it had been notified of a formal investigation by the Securities and Exchange Commission of its past accounting practices.
The company, which filed for bankruptcy protection in May, said it intends to comply fully with the investigation.
While these major service providers struggled with financial troubles, a number of smaller organizations demonstrated what seemed to be more stable financial circumstances by acquiring selected assets from other organizations.
Managed Internet service provider Via Net.Works announced on Monday that it had made arrangement to sell its operations in Argentina, Brazil and Austria. The Austrian and Brazilian operations were sold to their existing management teams, while the business in Argentina went to technology infrastructure provider Datco SA.
On Tuesday, Web hosting provider Invite Internet announced that it had sold its shared hosting business to small business solution vendor BizLand Inc. Invite said that, following the sale of its shared hosting business, it would be able to focus more completely on its private and dedicated server businesses.
And on Thursday, design, hosting and security provider E Solutions announced that it had acquired the "Aperian" data center in downtown Tampa, belonging to technology development company Fourthstage Technologies Inc. E Solutions said the facility would be fully paid for and debt-free, and that it looked forward to providing its clients with enhanced managed services and expanded capabilities.
While there has been a considerable lack of unequivocally positive financial news from the Web hosting industry lately, several companies happily announced their success in securing funding this week.
On Monday, data center architecture developer Nauticus Networks announced that it had successfully completed its series B funding by securing $6 million dollars from Advent International, one of the largest private equity firms in the world.
Managed Web hosting provider Inflow announced on Thursday that it had secured an additional $35 million in private equity financing from the company's existing investors, as well as venture capital firms Telecom Partners, Centennial Ventures and Meritage Private Equity Funds.
Inflow said that, along with recent restructuring, the new financing would bring the company to EBITDA positive by July 2002.
While this week's incumbent big news maker KPNQwest managed to make it through its self-imposed shut-down deadline with network intact, don?t expect an immediate retreat from the spotlight. With a set of considerable assets on the auction block, and little leverage in asking price, we can expect to see some major acquisitions in the telecommunications sector, perhaps as soon as next week.