Italian ISP Tiscali has agreed to buy France’s LibertySurf for $855 million.
French ISP LibertySurf can at last catch its breath. After months of uncertainty, the firm was last week the center of intense speculation. A merger was rumored with Belgium’s incumbent telco Belgacom; the French company was also rumored to be closing all its international operations. However, Italian ISP Tiscali has now agreed to buy LibertySurf for $855 million.
This deal is certainly good news for LibertySurf’s major shareholders Kingfisher and Europ@web. LibertySurf didn’t have enough cash to finance becoming a top-flight ISP – and the future for second-tier providers is looking less than bright. Now, the shareholders have been left with some cash and with relatively small stakes in a more stable company.
Tiscali is now Europe’s largest independent ISP, with top three positions in Italy, France, the Netherlands, Belgium, Switzerland and the Czech Republic – a grand total of 4.9 million customers. A large proportion of this scale came from its acquisition last year of troubled Dutch ISP World Online, which also provided it with a cash pile of over $1 billion. The LibertySurf takeover is one of the cheapest-ever ISP takeovers in terms of cash per subscriber, valuing a LibertySurf customer at two-thirds of what Wanadoo paid per Freeserve customer last year.
Tiscali is in a potentially good position to do well throughout Europe, with more customers than France Telecom’s Wanadoo and wider coverage than Deutsche Telekom’s T-Online. However, it is not necessarily as well placed as these two. The firm still lacks customers in Europe’s two largest Internet markets: the UK and Germany. Whilst there is some opportunity to grow by acquisition – indeed, Tiscali is rumored to be interested in buying UK ISP LineOne – breaking into these relatively mature markets may still prove difficult.
Of more concern is Tiscali’s independence. The company aims to be a major operator of pan-European IP networks, as high-bandwidth services become the norm in Internet access and as the local loop is opened up to third-party providers. In this climate, ISPs with their own regional networks will have a major advantage over those which have to rent capacity. However, network buildout is expensive, particularly considering the current economic climate for communications companies. Although Tiscali is in a better position than other independents to switch to broadband, it may be hard-pushed to keep up with the telcos.
