Telecom Ramblings

Rob Powell
In a pre-Thanksgiving announcement yesterday, GTT revealed that it is considering a future without fiber. The global cloud networking operator has retained Credit Suisse and Goldman Sachs as financial advisors for the potential sale of its infrastructure division.

GTT has been under pressure this year after the results of its integration of Interoute failed to live up to investor expectations. After succesfully rolling up dozens of network and managed services assets over much of the past decade, they finally hit a major snag. As growth fizzled and the company’s stock price have fallen, speculation has arisen about what the company might do to turn things around. Well, the option they are pursuing publicly now is to separate the infrastructure side of the business that they have acquired over the past few years.

The primary piece of what may be up for sale this winter is the assets of Interoute: a pan-European fibre network plus data centers to match. But it also apparently includes the Hibernia submarine cable business. That would leave the rest of GTT’s business at higher levels of the network stack intact of course, focusing on IP, Ethernet, and cloud connectivity. Operating such physical assets as fiber, conduit, and colo requires a different model and mindset, and thus makes for an obvious path to simplification.

So the question now becomes, who might buy such assets?

Ok, so the answer is probably obvious: an infrastructure fund or a company already backed by an infrastructure fund. The list of likely strategic buyers right now is smaller than it once was, and the companies on it don’t seem eager for inorganic buys of this magnitude. For example, while at one time Level 3 might have been a candidate, it’s still harder to see CenturyLink in that role. And Zayo soon will be itself privately held by infrastructure funds. But the likes of EQT, Macquarie, Antin, and Stonepeak are quite easy to see doing so, whether directly or indirectly through a portfolio company.

Infrastructure funds have been prowling for assets in Europe lately. EQT is already busy assembling a European infrastructure giant, combining IP Only with GlobalConnect and probably Inexio next. Antin’s European holdings of Eurofiber and CityFibre could follow a similar role. Macquarie just recently bought out a pile of FTTH fiber in Spain a few weeks ago. And Stonepeak’s portfolio company euNetworks seems ready for action these days as well.

It all depends on which is willing to meet GTT’s price, and we don’t know what that price is. They paid $2.3B for Interoute and $590M for Hibernia. But both companies had substantial business at other layers of the network stack that likely wouldn’t be part of the sale, so it’s rather hard to tell. In fact they may not sell the assets at all, it’s just an exploration right now that could even just be a move to mollify investors while they work out the kinks. And yet, they were a surprise buyer for Interoute in the first place, an infrastructure fund seemed like a more likely winner then and now. Those guys just have the resources to burn and the long time horizons needed on this side of the business.