Telecom woes weigh on Europe's Web

KPNQwest, the telecom provider that carries a quarter of Europe's IP traffic, filed for bankruptcy on Friday.

The provider, which filed for creditor protection last week, on Thursday advised its customers to "put in place contingency plans with other providers." The company has been negotiating for AT&T to take over its services for a reported $200 million, but the deal now appears to have fallen through.

KPNQwest carries around a quarter of Europe's IP data. Its customers include Dell Computer, Hewlett-Packard and Nokia.

Earlier this week, some equipment was turned off in the company's Brussels, Belgium, network center, before a last-minute reprieve kept the service online.

The news has caused shockwaves, as the company, a joint venture between Dutch national carrier KPN and U.S.-based Qwest Communications International, was seen as a survivor in the carnage of new telecommunications providers. At the end of 2001, KPNQwest had completed the purchase of Ebone, one of Europe's longest-established IP networks, and was looking for further expansion.

Both partners in the joint venture resigned from the company's board this year, and without this support, the company is not able to pay the bills for its continued service.

KPNQwest has so far failed to find a buyer, even though the proposed deal with AT&T seemed likely as AT&T has $300 million earmarked for expansion into Europe and lost its international partnership, Concert, last year.

Even if such a deal were to be made, it would take several weeks to finalize, during which time KPNQwest would be relying on KPN to pay its bills.

Gartner analyst Eric Paulak says KPNQwest still has enough customers to make its business attractive to any operator able to assume its debt burden. see commentary

The fallout from the failure of KPNQwest will take a long time to settle. Like many other carriers, the company had vendor financing from companies, including Nortel Networks, on much of its network equipment, so many of the assets in its centers belong to the equipment vendors.

IT managers are anxiously watching developments; previous bankruptcies such as Carrier1 and Viatel in the telecommunications field have not led to a loss of service, as buyers have always been found for the failed companies.

Other companies scent opportunity. Vanco, a virtual network operator, has launched a "KPNQwest SWAT team," which promises a one-hour response time to concerned IT managers who contact it by e-mail.

ZDNet U.K.'s Peter Judge reported from London.