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Search for KPNQwest buyer is on

Investment bank Bear Stearns has three weeks to find a buyer for the bankrupt company. Meanwhile, analysts and competitors determine what the end of the network would mean.

Investment bank Bear Stearns has just less than three weeks to find a buyer for the KPNQwest network, after an increased offer from shareholders KPN allowed the liquidators to keep the network running.

But one rival provider says the value in the network is now negligible and customers will move to established providers.

"Long term, KPNQwest is just a blip," said Christian Moeller, regional president of Sprint Europe. "It is no longer a business. What you have is a network at significant risk of failing." Given the overcapacity in long-haul fiber across Europe, he expressed doubt that anyone would offer much for it. Moeller claimed to already have picked up several ex-KPNQwest customers but declined to name names.

"The administrators did an amazing job," said a source close to Bear Stearns. "The damage a disconnection would do to large users had become brutally apparent. The network is on until July, by which time Bear Stearns should have sold the assets."

KPNQwest runs Europe's largest fiber-optic network, carrying one-quarter of the region's IP traffic and providing services for companies such as Dell Computer, Hewlett-Packard and Nokia. It is a joint venture between Dutch national carrier KPN and U.S.-based Qwest Communications International.

While some customers such as cable TV company UPC have moved away, others such as HP and Nokia appear to be sticking with the KPNQwest network, aware of the disruption that a sudden change would cause them. Administrators had offered a one-month stay of execution for the network if enough customers paid a month's fees in advance.

In the end, however, the administrators did not reach their target--estimated at $18.1 million to $23.6 million--by the deadline, but they took into account money promised and the value of the remaining large customers. "Most large customers are very supportive of the process," the source said.

Less supportive has been KPN, a shareholder that is disputing its debts to KPNQwest, put by some as high as $21.7 million. In talks Tuesday, KPN was forced to raise a 3.7 million payment to 8.3 million, according to sources familiar with the negotiations.

Regional expectations
Whatever the outcome of the KPNQwest bankruptcy, the telecommunications landscape in Europe will have changed for good, according to analysts as well as the competitors scrambling to snap up the company's customers.

"The surviving European carriers will become more regional," said Richard Webb, European analyst at Infonetics Research of San Jose, Calif. Already KPN, in withdrawing from KPNQwest, has limited itself to the Benelux countries. Others are focusing on the Scandinavian, Mediterranean, Western European or Eastern European regions.

The exception will be Colt Telecom, whose continued existence Webb attributes to its ownership of metropolitan fiber in London and elsewhere. "Metro fiber still has value, to provide access to customers," Webb said.

But big customers will still need international links and, for these, they will return to the established multinational players like Sprint, AT&T, Deutsche Telekom and British Telecommunications. "There will be about three truly global operators," said Sprint's Moeller. But those players will need help to meet customer needs. "We're not about to open 15 points of presence in the U.K.," he said. "We need local partners."

That is where the national and regional players will come in. "It is anyone's guess how many there will be," said Moeller, but he knows he will need partners like Belgium's Belgacom and Denmark's TDC.

There are other options; "network integrators," such as Vanco, which own no bandwidth but put together custom networks for customers from different providers, may do well in the fallout of KPNQwest.

ZDNet U.K.'s Peter Judge reported from London.