The combined company will have an expanded network with nearly 5,000 route-km of high-capacity fiber-optic network infrastructure already in commercial service in Western Europe. An additional 5,400 route kilometers is scheduled to go into service by year-end 2000.

Michael J. Mahoney, Viatel's chairman and chief executive officer, calls the transaction "a significant transaction for Viatel. It accelerates the company's entry into the provision of data services such as frame relay, ATM, and IP. And it adds significantly to our U.K. customer base, not only in numbers, but also in scale."

Dan Fletcher, research analyst at Lehman Brothers, agrees. "What they're buying is really a national footprint in the U.K., giving them a large corporate customer base and a revenue stream of $90 million per year," he says. Fletcher adds that, through the deal, Viatel will be bringing a significant source of traffic into its Circe network, which should drive margins up over time and enhance the capital return of the network.

Additional integration with primary U.K. carriers British Telecom and Cable & Wireless Communications through 50 points of interconnection will provide Viatel with access to approximately 95% of the U.K. population, 300 of the top U.K.-based pan-European corporations, and over 320 small and medium-sized enterprises.

Although AT&T says the decision to sell the subsidiary resulted from a shift in focus from local European service to global networking, operations, Fletcher believes that AT&T had no choice but to sell, in light of its agreement with British Telecom. "The joint venture requires that AT&T pull out of any direct competitive effort in BT's home market," he explains. "It's been known for a while that this sort of transaction would happen," he adds. "We just didn't know who would be buying it."