Sometimes long standing companies miss out on a major trick when they are looking for cash. They sell off their prize assets, and go back to their boring old, profit-less backwaters. A great example of this was British Telecom selling off O2, which eventually fetched $37 billion when it sold itself to Telefonica. BT should have kept the mobile business and sold the parent incumbent telco business.
But that’s just what UK’s Pipex seems to have done, in selling off the old Pipex ISP business for $429 million, and keeping the joint venture WiMAX business that it has partnered Intel on.
It was as early as May that insiders began leaking the idea that Tiscali of all companies was being considered as the favorite to land Pipex, after months of BT, Carphone Warehouse, BSkyB, and Virgin Media all being considered in the frame, with the latter two interested in the ISP base, and BT and Carphone Warehouse more focused on landing the WiMAX 3.6 GHz spectrum that Pipex holds, and less interested in the pure ISP operation. We presume that this deal may still mean that the remaining assets might also be sold off subsequently and now that the 2.5 GHz auction in the UK is delayed, BT will be more desperate than ever to land the other half of Pipex. Which gives us a link with the first paragraph, so that BT can finally get back on the wireless bandwagon it fell off when it sold O2.
Tiscali already bought the IPTV based HomeChoice from Video Networks and added it to its existing UK broadband and dialup business there, and paid for this by selling off its German and Dutch operations. In the UK it will now add 570,000 Pipex broadband customers.
Tiscali bought the broadband and voice divisions of Pipex for the British pound equivalent of $429 million, give or take final adjustments based on how much working capital it needs. The acquisition needs shareholders approval and clearance by the UK Office of Fair Trading, neither of which are unlikely.
The ISP division was expecting sales for the year to reach £300 million ($600 million) with an EBITDA of £20 million ($40 million) and has one million active customers, 650,000 which take voice, 570,000 which have broadband, with 250,000 taking both and some 100,000 small businesses.
The company will transfer some 1,400 employees and post deal Tiscali will have one of the biggest broadband operations in the UK, rivaling incumbent British Telecom in terms of direct customers, at 1.9 million with a huge footprint of 800 unbundled telephone exchanges. It now says that it can reach 55% of UK homes and will extend this network to reach 65%. The only other comparable ISPs in the UK are those run by Cable and Wireless, Virgin Media, and BSkyB’s Easynet and of course incumbent British Telecom itself. In total the UK has around 13.5 million broadband lines, so that makes 14% of the UK market falling to the independent Tiscali.
It was only 9 months ago that there was rampant speculation about just who might want to buy the Italian ISP, with names like T-Mobile, Telefonica and Vodafone being suggested, as the trend for mobile operators to acquire ISP lines took off.
Mary Turner, CEO of Tiscali UK, said: ‘The acquisition of Pipex’s broadband and voice division further cements Tiscali’s position as a fully integrated telecom and media operator in the top league of the UK market and underlines our reputation as a major investor and innovator in the full range of broadband services.’
It will take four years, a company statement said to shake out integration efficiencies of around £150 million. But this is more about taking what Tiscali already has in a best in class triple play, and sharing it around with more customers.