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Tiscali sells Liberty Surf
By John Blau

Italy's Tiscali SpA has shed another of its European subsidiaries in a continuing effort to raise cash and reduce its debt.

The Italian ISP (Internet service provider) agreed on Tuesday to sell 95 percent of its French business, Liberty Surf SA, to Telecom Italia SpA for &eruo;266 million (US$342 million). [m] Once the transaction is completed, Telecom Italia will bid for the remaining 5 percent, as required by French law, Tiscali said.

The French sale follows divestments in several markets, including Austria, Denmark, Switzerland, Sweden and South Africa.

Tiscali, in Cagliari, Italy, began a fire sale of assets several months ago to raise capital to repay a &eruo;250 million [m] bond due in July. The operator borrowed money largely to finance its aggressive European expansion, amounting to 40 acquisitions in 15 countries within a six-year period.

The Italian ISP is now expected to focus on providing broadband Internet access and VOIP (voice over Internet Protocol) services in a handful of key markets, including Germany, Italy, the Netherlands and the U.K., according to Dan Bieler, research director at the London-based consultancy Ovum Ltd.

The move by Telecom Italia to snatch up the French business reflects a widening assault by former European telephone monopolies on the region's ISP market. Incumbent operators such as Deutsche Telekom AG and France Télécom SA have not only moved to reintegrate their Internet arms but also to expand their geographic presence, with a focus similar to Tiscali's on high-speed Internet access and VOIP.

"Unfortunately, a good chunk of the ISP business is moving to the incumbents because, at the end of the day, it's all about making money," Bieler said. "ISPs owned by telecom operators such as Deutsche Telekom and France Télécom with their own network infrastructure in their domestic markets and acquired infrastructure in others have better margins than resellers like Tiscali that have to pay for infrastructure services."

While not dismissing the resell model altogether, Bieler said "scale is essential" to make it work.

That, however, is exactly what Tiscali attempted and failed to achieve. The huge debt amassed from its acquisition binge, coupled with the collapse of the Internet economy at the turn of the century, undermined the ISP's business case.

Despite Tiscali's retrenchment, the European ISP market enjoys a high level of competition, which is delivering attractive prices and services for consumers and small businesses alike, according to James Woodcock, an analyst with Gartner Inc. "We're seeing numerous Net offers for higher speeds and lower monthly fees, in addition to a wealth of value-added services such as video, gaming and Net telephony," he said. "Even if the incumbent telephone companies are stepping up their efforts in the ISP market, they face plenty of competition."

Posted April 6, 2005 03:56 PM |