Europe annexes U.S. tech
May 25, 2001
Web posted at: 1255 GMT
By Chris Nuttall
LONDON (CNN) -- As America contemplates the ruins of its expansionist strategy for the Internet economy, European carpetbaggers are riding into town.
Too many U.S. technology companies grew too fast in the new economy boom years of 1999 and 2000. Now Europeans, criticized then for their failure to grasp the Internet opportunity, are being seen as wise in their caution.
American data network builders were perhaps the most guilty of overarching ambition. Their dreams were to girdle the globe with fibre-optic cable and channel the world's data through mega-hosting centers.
Now these companies are crippled by debts and in ragged retreat as demand for their broadband services lagged.
Among these, network operator Viatel (VYTL: Research, Estimates) has filed for Chapter 11 protection from creditors, XO Communications (XO: Research, Estimates) has pulled out of Europe and service provider PSINet has defaulted on debts and been delisted from the Nasdaq.
Digital Island (ISLD: Research, Estimates), the global content delivery network, had reported a huge second-quarter loss and its shares had lost 95 per cent of their value in less than a year when Britain's Cable & Wireless (CWP) snapped up the company for $340 million this month.
C&W's $10 billion war chest
C&W benefits from having a traditional voice business and has amassed a war chest of more than £7 billion, or about $10 billion, for acquisitions following its sale of non-core assets.
It is reported to have been interested in parts of PSINet's business and been rebuffed by hosting giant Exodus Communications (EXDS: Research, Estimates). A U.S. competitive local exchange carrier (CLEC) is believed to be next on its shopping list.
Equipment suppliers to the networks have suffered grievously from the problems of their customers.
As a result, Lucent Technologies (LU: Research, Estimates) may be acquired by France's Alcatel (ALA: Research, Estimates) in the next few days in a deal that could be worth $40 billion. The European company, long-established with a presence in 130 countries, is almost old economy next to Lucent, a five-year-old spin-off of AT&T.
"The biggest driver for these takeovers is price, whenever there's a cheap deal, people won't let it pass," says Tim Chen, a senior consultant for telecoms research firm Analysys.
"But it's also about the relative strengths of how companies are run in the U.S. and Europe and the way they handle their cash positions. Being conservative in the current climate is usually a good thing, and it gives very good bargaining power."
Carpetbaggers buy success
American companies have mostly led the way in developing revolutionary Internet technologies, but the Europeans are now buying into this intellectual property to draw level.
Record companies the world over have been slow to spot the possibilities of online music distribution. But Germany's media conglomerate Bertelsmann made a deal with the peer-to-peer music-swapping service Napster last November to develop a subscription-based service.
Last week, France's Vivendi Universal (PEX) announced the acquisition of MP3.com for $372 million. Universal will adapt the my.mp3.com technology to its planned Duet music subscription service.
Both Napster and MP3.com were hit by debts created by expensive legal fights over copyright issues. But it was established European players who were first to realise the commercial potential of their technologies.
"For many European companies, they're playing catch-up in specific areas such as Cable & Wireless with Digital Island's Internet expertise and Vivendi wanting experience in developing their digital content," says Chen.
Rebecca Ulph, an analyst with Forrester Research, sees the current trend as Europe learning from the United States in how to save time to market:
"I think companies have seen from the experience of U.S. businesses expanding into Europe that the best way to do it is by acquisition. Europe is now returning the compliment," she says.
"It can be very expensive building a new brand and they are getting a bargain in these circumstances."
American companies' financial problems are also helping Europe's old economy companies catch up with state-of-the-art online offerings in their own markets.
In February, the staid John Lewis department store chain bought the UK assets of Buy.com, giving it an e-commerce Web site under the same brand name selling electronics and office supplies.
It's a retelling of the classic fable of the tortoise and the hare, according to Ulph:
"A couple of years ago, the U.S. was at the top of the dotcom boom. It was too ambitious, making massive acquisitions and paying top dollar.
"Europe wasn't even thinking about it. Now we have some of the old economy media and IT companies and big brands swooping in to become leaders. Many shares are as low as they can get and there's a lot of opportunity out there for more acquisitions."
RELATED STORIES:
Alcatel, Lucent in talks – May 18, 2001
Buy.com execs step down – Feb. 13, 2001
RELATED SITES:
Vivendi
embraces old foe – May 21, 2001
C&W buys Digital Island – May 14, 2001
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