Pangea sold out of its misery

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The recently announced sale of the Pangea network will help reduce the cloud of uncertainty hovering over the European market since last year's collapse of many pan-regional operators.

By Kurt Ruderman, KMI Corp.

Pangea, one of the first pan-European networks to go bust, has agreed to sell part its key Swedish assets to Arrowhead, the telecoms division of Vattenfall, the state-run Swedish utility for an undisclosed amount.

In Europe as in North and South America, the fate of distressed assets has created uncertainty for communication companies that have capacity on bankrupt systems. In the one of the worst cases, pan-European network operator KPNQwest shut down its system this summer. The situation has also created uncertainty for companies that compete with the bankrupt systems.

Under an agreement with the trustees of Pangea in Sweden, Norway and Denmark and other parties, Arrowhead will acquire Pangea's fibre network and telecommunication equipment in the approximately 2,000km 48-fibre Swedish ring connecting Stockholm, Oslo, and Copenhagen.

Pangea was a pan-European operator which built a USD450m, 6,000 route-kilometer high-capacity network linking the UK, northern Europe, and Scandinavia. Pangea entered into administrative receivership in September 2001 and the Nordic companies filed bankruptcy in May and June 2002. Pangea's trustees have not commented on the fate of remaining network assets nor on the sale of the Swedish ring, which was announced by Vattenfall.

Arrowhead, which had leased dark fibre from Pangea, is only interested in Pangea's Swedish ring. "Arrowhead focuses on Sweden and capitals in Scandinavia," Mats Lundqvist deputy CEO Arrowhead said. "We bought Pangea's Swedish ring for three reasons: to extend our network; to acquire Pangea's DWDM based network; and to consolidate the market. We did not want the assets to land in the hands of a competitor."

Misunderstanding
Enterprises, banks, and public sector institutions continue to fuel high bandwidth demand in Sweden's national market. "Pangea misunderstood the market. They focused on moving traffic from Baltic to UK," Mr. Lundqvist said. "We see a lot demand for second-tier cities in Sweden. There are 800,000 enterprises in Sweden. These enterprises need to drop traffic within these cities. Also, there are hundreds of branch offices of banks."

The demise of private communications companies has in recent months accelerated the telecom plans regional and municipal governments and of state-run utilities in Europe. Vattenfall, which owns Sweden's main power grid has, like many other utilities, entered the telecoms business cautiously, one step at a time.

In the mid-1990s, Vattenfall installed 2,000 km of wrap-around 96-fibre cable on its grid to launch its dark fibre business. Then in 2000, Vattenfall went up the value chain, acquiring Arrowhead, a carrier's carrier with an IP network. Arrowhead which had a relationship with Pangea provided Vattenfall with technical knowledge needed to expand. In 2001, Vattenfall-owned Arrowhead expanded its coverage in Sweden through the acquisition of another 2,000 km 96-fibre network in Sweden. Today, Arrowhead is the third largest network owner in Sweden after Telia (the largest) and Banverket (the Swedish rail corporation).

Arrowhead's network is IP-based and delivers Gigabit Ethernet services throughout its entire operating region.

Under a soon-to-be announced contract with Nortel, Arrowhead will upgrade Pangea's Swedish SDH, DWDM based ring to support Gigabit Ethernet services that continue to see strong growth in Scandinavia.

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