Atlantic Telecom Grp - Acquisition, etc.
April 27 2000 - 3:07AM
UK Regulatory
RNS Number:6623J
Atlantic Telecom Group PLC
27 April 2000
Atlantic Telecom to expand into European broadband markets with
#520 million proposed acquisition of First Telecom
Partnership with Metromedia Fiber Network
("MFN") and AboveNnet also announced
Atlantic Telecom Group PLC ("Atlantic Telecom") today announces
it has reached agreement for the acquisition of First Telecom
Group PLC ("First Telecom") for #520 million in newly issued
Atlantic Telecom shares. The acquisition positions Atlantic
Telecom to become a leading provider of broadband data services
in Germany, Europe's largest telecommunications market, and
enhances Atlantic Telecom's position as a leading alternative
provider of telecommunications services in the UK. Atlantic
Telecom also announces a partnership and fibre swap with
MetromediaMetromedia Fiberre Networks BV ("Metromedia") and
AboveNnet UK Ltd ("AboveNet").
The enlarged group will be able to offer telephony and high
speed Internet services, utilising fixed wireless, symmetrical
digital subscriber line ("SDSL") and fibre optic cable.
Its addressable market will be of around 17 million households
and one million businesses in the UK and a planned
850,000 SME's (small and medium-size enterprises) and SoHo's
(small and home offices) in Germany. The enlarged group
expects to benefit from the addition of First Telecom's SDSL
broadband technology to the predominantly fixed wireless and
fibre optic cable services already successfully deployed by
Atlantic Telecom.
First Telecom is a European telecommunications operator, which
currently provides telephony and Internet services to SME's,
SoHo and residential customers in the UK, Germany and France
with a combined customer base of over 11,000 SME's and over
290,000 residential customers. First Telecom is one of the
first companies to have started the installation of
SDSL broadband technology in Germany, which is expected to be
available for commercial launch in July 2000.
Under a separate transaction, Atlantic Telecom has
reached an in principal agreement with MFN under which it
will receive dark fibre throughout the 16 in the
European city networks currently planned or under construction
by MFN. These networks include London, Paris and Amsterdam as
well as eight major cities in Germany and a number of other key
European cities. In exchange Atlantic Telecom will provide MFN with
two dedicated wavelengths of bandwidth capacity on Atlantic Telecom's
UK national network.
Graham J. Duncan, Executive Chairman of Atlantic Telecom, said:
"These transactions will give us the opportunity to be a
leading broadband telecommunications provider in Europe,
offering our joint customer base a combination of the best of
fibre, fixed wireless and DSL technologies.
The strategies of First Telecom and Atlantic Telecom are very
similar and the combination of the two groups is compelling,
giving an enlarged Atlantic Telecom scale in the UK and an
important early entry to SDSL deployment in Germany, Europe's
largest telecom market."
David Oertle, Executive Chairman of First Telecom, said:
"We are delighted to be able to conclude this transaction with Atlantic Telecom.
The two groups are like minded with strong entrepreneurial cultures, and the
combination of the assets will deliver a number of synergies and position
Atlantic Telecom as a leading integrated telecommunications provider in Europe
with expertise in a number of different access technologies".
Transaction Highlights:
* Atlantic Telecom is acquiring the entire share capital of
First Telecom for #520 million, payable in newly issued
Atlantic Telecom shares;
* Based on Atlantic Telecom's closing share price of 765p
at 26 April 2000, First Telecom shareholders will be
issued shares representing approximately 29.7% of the
enlarged Atlantic Telecom Group on a fully diluted basis;
* Approximately 8.6% of the consideration will be
deferred until June 30, 2001 to cover any claims arising
from representations and warranties given by First
Telecom's major shareholders;
* The transaction is subject to approval by Atlantic Telecom
shareholders and to the London Stock Exchange agreeing to
admit the newly issued Atlantic Telecom shares to the
Official List. Documents will be sent to Atlantic Telecom
shareholders and the EGM date announced in due course;
* At the EGM, First Telecom Vice Chairman and
Executive Director, Mark Daeche and Non-Executive
Directors, Paul Salem (of Providence Equity Partners)
and Vice Chairman and Executive Director, Mark Daeche, will
be proposed as non-executive and non- executive directors
of Atlantic Telecom respectively, with Mark Daeche
taking up the role of Special Projects Director;
* Marconi plc and the directors of Atlantic Telecom, who
together represent 34.1% of the current issued share
capital of Atlantic Telecom have agreed to vote in favour
of the transaction at the EGM;
* Certain key shareholders, whose relevant shareholdings
together represent over 85% of First Telecom's fully
diluted share capital, have entered into a lock-up
arrangement, whereby they have agreed not to sell or
transfer their Atlantic Telecom shares for a period of six
months from the Offers going unconditional and not for a
further 18 months without consultation with Atlantic
Telecom;
* It is anticipated that the SDSL roll-out in Germany will be
financed out of Atlantic Telecom's existing resources.
Operational highlights:
The transactions provide significant benefits to Atlantic
Telecom, including:
* Giving Atlantic Telecom early access to the SME and SoHo
markets in Germany, Europe's largest telecommunications market;
* Providing a platform for Atlantic Telecom to roll-out
broadband services in other European markets, particularly
France, where First Telecom has an infrastructure
telecommunications licence;
* Increasing Atlantic Telecom's potential customer base for
its direct access services in the UK, where First Telecom
has 135,000 existing residential and SME customers;
* Adding SDSL, the high speed broadband technology, to the
fixed wireless and fibre optic cable services already
offered by Atlantic Telecom in the UK;
* Enhancing First Telecom's existing UK revenues, margins
and traffic flows by using Atlantic Telecom's national
fibre network;
* Enhancing Atlantic Telecom's ISP services announced today,
into server hosting which is already supplied by First
Telecom's two existing ISPs (Interactive Network Information
System in Germany and Cerbernet in the UK); and
* Giving Atlantic Telecom access to MFN's planned
16 networks, covering London, Paris, Amsterdam, and
eight cities in Germany, as well as a number of other key
European cities;.
The transaction also creates a company with scale and strength
in a number of geographic markets:
United Kingdom
Atlantic Telecom currently operates fixed wireless services in
Glasgow, Edinburgh, Aberdeen and Dundee and is on schedule to
launch commercial services in its first English metropolitan
area, Greater Manchester, in July 2000. Its four current
Scottish networks pass more than 735,000 premises and total
lines installed and pending installation were 98,272 as at 31
March 2000. Atlantic Telecom also operates a national,
scaleable, high-capacity fibre optic backbone and expects to
access more than 40 points of presence and connections between
most major metropolitan areas in the UK by late 2000.
First Telecom offers its UK voice and ISP products to 5,500 companies
and 135,000 residential customers and plans to roll
out an SDSL broadband network aimed at the SME market when
access for new entrants to the local loop is permitted, in a
complimentary fashion to Atlantic Telecom's fixed radio access
networks. First Telecom is a participant in the ULL trials in
the UK.
Germany
First Telecom is one of the first companies to secure
agreements with Deutsche Telekom for the roll-out of SDSL
services. It has requested more than 700 co-locations
from Deutsche Telekom and has current acceptances on
286. First Telecom plans to launch commercially its SDSL broadband
network by July 2000 and have all approximately 700 co-
locations operational by December 2001. Its existing voice
and ISP products and services are currently offered to 3,300
companies and 79,000 residential pre-paid customers in Germany.
France
First Telecom currently offers its French voice products and
services to 2,200 companies and 49,000 residential pre-paid
customers. First Telecom has been selected to commence trials
of DSL in the French market and plans to roll out an DSL
broadband network when access for new entrants to the local
loop is permitted. First Telecom holds telecommunications
licenses to enable it to offer telecommunications services in
France, together with a local license for the Paris region.
Atlantic Telecom owns a 10% shareholding in Skyline SA, which
has applied for national and certain regional wireless local
loop licences in France, in competition with a number of other
operators. The result of the competition is expected later
this year.
In the year ended 31 December 1999, First Telecom generated
turnover of #59.9 million and an operating loss of #32.9 million.
At the same date, it had net assets of #10.6 million.
First Telecom currently has a small net cash position.
Atlantic Telecom was advised by Chase Manhattan plc and First
Telecom was advised by Morgan Stanley Dean Witter.
There will be an analyst conference at 9:30 a.m. today at the offices of ABN
AMRO, 250 Bishopsgate, EC2.
For further information please contact
Atlantic Telecom Group PLC
Graham Duncan, Executive Chairman
Gordon Sleigh, Group Managing Director
Tel: (+44) 020 7638 9571 (today only)
Chase Manhattan plc
(Financial adviser to Atlantic Telecom)
Richard Blakesley, Managing Director
Tel:(+44) 020 7777 2000
Andrew Honeyman, Vice President
Tel: (+44) 020 7777 2000
Citigate Dewe Rogerson
(PR adviser to Atlantic Telecom)
Patrick Toyne Sewell/Sara Thomas
Tel: (+44) 020 7638 9571
Close Brothers Corporate Finance
(Merchant bank adviser to Atlantic Telecom)
David Arch, Director
Tel: (+44) 020 7655 3116
ABN Amro Hoare Govett
(Broker to Atlantic Telecom)
Bob Pringle
Tel: (+44) 020 7678 1581
Chase Manhattan plc, which is regulated in the United Kingdom
by The Securities and Futures Authority Limited, is acting for
Atlantic Telecom and no one else in connection with the Offers
for First Telecom and will not be responsible to anyone other
than Atlantic Telecom for providing the protections afforded to
customers of Chase Manhattan plc nor for giving advice in
relation to the Offers.
Background information on Atlantic Telecom Group PLC
Atlantic Telecom Group PLC is a rapidly growing competitive
local exchange carrier, concentrating on building advanced
local loop telecommunications access networks in heavily
populated metropolitan areas. Its primary objective is to
provide advanced, reliable, high-quality, attractively-priced
data, voice and Internet services to small businesses (fewer
than 30 lines), medium-sized businesses (fewer than 200 lines)
and high-spending residential customers. Atlantic Telecom
provides these services through high-bandwidth local network
assets, and intends to provide these services through its
national network assets beginning in mid-2000. Atlantic
Telecom launched service in its first metropolitan area network
in October 1996 and currently operates four facility-based
networks in Glasgow, Edinburgh, Aberdeen and Dundee. It is on
schedule to launch commercial services in its first English
licence metropolitan area, Greater Manchester, in July 2000.
Atlantic Telecom's licence areas encompass Scotland and the
North East, North West, Yorkshire, Midlands, South West and
South East areas of England, covering a total of approximately
17 million households and one million businesses.
Background information on First Telecom
History
First Telecom started operations in the UK in 1995 through the
provision of low cost voice services and has grown
significantly to become one of the leading UK alternative
telephony service providers. First Telecom started similar
operations in Germany in September 1997 and France in October
1997. In February 2000 First Telecom expanded into Internet
service provision through the acquisition of Cerbernet and INI,
which offer access and web hosting services, principally to
SME's in the UK and Germany respectively.
First Telecom's strategy has been to provide integrated voice
and Internet services and broadband data services to its
customer base. Currently, First Telecom has approximately
11,500 SME customers. In addition, First Telecom has around
290,000 residential customers. First Telecom has
also aggressively pursued the rollout of its DSL network in
the most attractive European markets, in particular Germany and
is migrating its business into an integrated communications
provider developing high value-added services to customers, a
strategy similar to Atlantic Telecom.
Products and services
SDSL services - First Telecom intends to offer a range of
wholesale products via its SDSL network being developed in
Germany. SDSL is an access technology that transforms basic
copper infrastructure into an "always on" high-speed access
network. It is this high-speed service utilising existing
infrastructure in the customer's premises that is initially
being offered by First Telecom in Germany.
Following completion of the initial rollout of the SDSL network
in Germany, First Telecom intends to offer an integrated voice
and data package to SMEs and to existing voice and internet
customers in Germany. The voice element of this package will
initially comprise the existing voice telephony services that
are already available in Germany, which would involve carrier
pre-selection.
Upon development of the necessary protocols, First Telecom
intends in due course to launch a voice over SDSL product in
Germany. This product would be carried over First Telecom's
dedicated SDSL line rather than over the existing ISDN lines,
which are leased from the incumbent operator. First Telecom
would be able to offer an integrated package, which would be
even more attractive to customers who would no longer need to
pay line rentals on what would become redundant ISDN lines.
Voice services are offered under branded packages in the UK,
France and Germany as follows:
* First Corporate - aimed at SME's and SoHo's, this service
offers comprehensive billing together with optional ISDN
services, executive charge cards and non geographic
(freephone local and national rate) numbers;
* Easy Phone - a post-paid residential service aimed at high
income home owners and offering competitive rates;
* First Phone - a pre-paid service to residential customers
at competitive rates in the UK, France and Germany.
In addition, the German market is currently addressed through a
call-by-call service and the French market through pre-paid
disposable calling cards. First Telecom also provides wholesale
termination rates to certain international destinations to
enable it to obtain volume discounts.
Internet Service Provision - ISP capability was acquired by
First Telecom in February 2000 through the acquisition of
Cerbernet, based in London and INI, based in Frankfurt. Both
companies provide connectivity and server hosting services,
focused on the SME market. Cerbernet has approximately 1,100
SME customers and INI has approximately 400 SME customers.
Both Cerbernet and INI provide core services to their customers
comprising connectivity, or access, to the Internet and server
hosting services. Both ISP's offer dedicated access through
leased lines and dial up access through ISDN lines and
particularly focus on the SME market. Server hosting services
are available to customers either on a dedicated basis where
the customer is allocated its own server or on a shared server
basis. Cerbernet and INI also offer customers the option of co-
locating their own servers at the ISP's premises and provide
ancillary services such as domain name registration and the
administration of e-mail services.
In addition, Cerbernet offers web casting services for audio
and video distribution to its customers and INI has developed
firewall installation services for its SME customers.
Cerbernet is currently trialling the ADSL service offering with
British Telecom and intends to re-sell this service to
potential customers for its internet services in cities where
First Telecom will ultimately roll-out its own DSL services.
Network architecture
First Telecom has adopted a "smart build" approach to network
development. This involves building a geographic concentration
of customers before building, acquiring or extending its
network through the acquisition of switches or the leasing of
fibre optic transmission facilities. These switches are
installed with least cost routing technology.
First Telecom's voice network includes:
- 3 switches in London, Frankfurt and Paris;
- Lease arrangements on international cables from London to
Paris (providing 155 megabits per second) and London to
Frankfurt (providing 45 megabits per second). These cables are
leased under 6 month renewable contracts from Telia and MCI
WorldCom respectively;
- Seven points of interconnection outside Frankfurt; and
- Owned fibre between First Telecom's points of presence in
Paris and Massey (20km outside Paris).
Both Cerbernet and INI lease bandwidth within Europe and to the
US.
First Telecom is also constructing a SDSL network in Germany,
which will support local, long distance, high-speed data and
internet services. The initial phase of this buildout will
cover approximately 30 cities, commencing with Frankfurt, which
is scheduled to launch in July 2000 and rolling out through
other cities over the next two years.
The SDSL network will consist of copper loops ("unbundled
network elements" or "UNE"s, leased from Deutche Telekom)
acting as direct connections between a customer and one of
First Telecom's co-location facilities located in Deutche
Telekom's central office. Within each co-location facility,
First Telecom will deploy SDSL access multiplexers to support
the SDSL service offering.
END
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