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    Home Latest News

      Buyer Beware of Telecom Gear

      Written by

      Caron Carlson
      Published December 2, 2002
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        Level 3 Communications Inc. last week agreed to acquire the assets of Genuity Inc., the latest example of a growing trend in the networking-gear industry that has seen once-highflying telecommunications products and companies put up for sale at bargain-basement prices.

        The trend has actually spawned a cottage industry of sorts to broker such sales to enterprises as well as carriers. But some analysts warn that buyers should be aware of what theyre getting.

        Telecom Assets Management Group Inc., in San Francisco, is one of the companies that saw an opportunity in the sudden telecom retrenchment after a long period of overextension. The group works with struggling carriers, about half of which are in bankruptcy, providing asset analysis, valuation and sales strategies.

        Most of the buyers registered to bid on the assets are service providers, but more than 50 enterprises, including a number of universities and hospitals, are registered as well, said Mike Scheele, managing partner and co-founder. The company focuses on major, IP-related network components, which work equally well in the service provider and enterprise environments, Scheele said.

        “[Enterprises] can selectively buy network components and transport links that they need in their network as they become available in the marketplace,” Scheele said. “When it comes to packets, packets are packets, whether a carrier is transporting them or an enterprise is transporting them.”

        TAM wont sell everything a troubled data carrier is trying to unload, however. “Theres a lot of stuff out there thats really not going to sell,” Scheele said. “The things that do sell really well are core routers and edge routers—big IP boxes.”

        Many analysts warn enterprises to be wary of used network infrastructure, however, particularly if it comes from a bankrupt carrier. The biggest worry is that once a company files for bankruptcy protection, it is unlikely to spend sufficient resources to maintain the network, said Tony Marson, an analyst at Probe Research Inc., in London.

        “It may be very difficult to assess the sort of things that youre actually buying,” Marson said. “If I were advising enterprises, Id tell them to stay clear of distressed assets. Unless you are fully satisfied that everything has been maintained, dont touch it with a barge pole.”

        Glenn ODonnell, an analyst at Meta Group Inc., in Stamford, Conn., predicted there will be unpleasant unintended consequences in acquiring distressed assets. “People who are doing this are going to have some ugly surprises, Im afraid,” he said.

        Genuity agreed to file for Chapter 11 bankruptcy protection last week to facilitate the deal with Level 3. The Woburn, Mass., networking services provider was forced to restructure its debt after Verizon Communications Inc. decided in July not to re-integrate after spinning it off in 2000. Level 3 will pay $242 million for the company.

        Caron Carlson
        Caron Carlson

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