Neutral Tandem (Nasdaq: TNDM) announced last Thursday that it would acquire Italian global IP carrier Tinet SpA for $95 million in cash, setting off a flurry of talk about what the deal would mean for IP transit and boosting Neutral Tandem's stock, if slightly.
At the COMPTEL PLUS Fall show in Dallas, Texas, Neutral Tandem Senior Vice President & Chief Operating Officer Surendra Saboo brought some background to the deal and the opportunities it gives his company.
"We've been in the voice business for six years now, but our footprint has been limited to the U.S.," he explained. Meantime, the economic environment and a high margin had Neutral Tandem's leadership looking for different options, and the advent of the Ethernet exchange opened a new market along with the opportunity for some M&A activity.
Tinet and Neutral Tandem already had a relationship, with the Italian carrier purchasing services from the U.S.-based tandem services provider. "They are one of our pilot customers for Ethernet exchanges. We approached the private equity (which bought Tinet from Tiscali SpA about a year ago)," Saboo says.
For Neutral Tandem, the company fit the profile of what they were looking for. Tinet started out as an IP transit company and in 2009 got into Ethernet private line. As a carrier with global reach, achieving Tier 1 status in May of this year, and 15 NNIs in the EU and Asia-Pacific region, the company offered the global footprint Neutral Tandem was looking for.
"(Tinet) has 600 customers in 70 countries. They had a whole layered IP network...We have a similar network in the U.S., with only voice services," says Saboo. "Marrying the two networks together...gave us the (means) to build voice, IP transit, Internet services" including high-end video exchange, the ability to host applications, cloud computing, and software as a service (SaaS).
"The idea is interconnection ... with content providers, hosting service providers... and provide them with IP connection or access to the services. It was a right size sort of thing."
Neutral Tandem's Ethernet exchange service provides end-to-end connectivity for its customers, and adding Tinet's assets means being able to offer wholesale voice, IP, and Ethernet connectivity across continents. "We will have a presence across the world. What makes a difference in the Ethernet exchange space is to have that presence worldwide. All these exchange points are interconnected through our backbone," Saboo says. "For (major carriers) to have a connection in Hong Kong and be able to get through to a building in the U.S. ... that's a value proposition."
"Ethernet is a global phenomenon. It's not limited to the U.S.," he continued. With Tinet's assets, Neutral Tandem can can take voice traffic from global customers and terminate the traffic in the U.S. - "and once we can do that we can terminate a U.S. call (in another global location)." Saboo adds, "This is really the formation of the real IPX (internetwork packet exchange)."
Neutral Tandem, like most wholesalers looking at addressing new capacity needs, sees opportunities for wireless backhaul-something the company can make available through its Ethernet exchange. Saboo says the company is already talking with one major wireless carrier about aggregation.
So, where does the Ethernet exchange fit best? Tier 2 markets, Saboo says. "Carriers have been connecting to each other directly...because that's the only way for them to connect." And high volume locations with established NNIs don't need Ethernet exchanges, "but they will have need in Tier 2 and 3 markets and distant locations such as Romania."
Those distant locations present another facet to the company's global connectivity goals. "Tinet has relationships in Africa. They are focused in Asia, in Singapore, they're moving now to Latin America. The emerging countries is probably where it's hardest in terms of negotiations and connecting (NNIs, etc.) And that becomes an asset in terms of connections and NNIs. We'll continue that expansion in those emerging markets."
Can Neutral Tandem's expanded footprint jump-start the Ethernet exchange market, which Saboo says has not really gained much traction among providers? That remains to be seen as the two companies firm up details of the acquisition. Meantime, there are no plans to rebrand Tinet anytime soon. "The Tinet brand name will remain. It's a strong brand outside the U.S.," Saboo says.
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