Getting global goods

In an aggressive effort to take advantage of the telecom industry consolidation happening throughout Europe, World Access has acquired three European carriers: Long Distance International, which operates under the name NETnet; STAR Telecom; and WorldxChange Communications.

The purchases push World Access from the wholesale arena into retail. The three acquisitions also follow World Access' announcement in December 1999 that it would shift its focus from equipment manufacturing to providing international long-distance services. And based on recent statements, the company hasn't completed its buying spree.

World Access completed the LDI acquisition, valued at $185 million, on Feb. 14. The STAR Telecom purchase will cost World Access a little more than $500 million in stock with the option to pay 40% in cash. And the WorldxChange deal is worth just more than $900 million with assumed debt. World Access expects to complete the STAR and WorldxChange mergers in July.

The acquisitions are part of World Access' plan to rapidly consolidate the European telecom market, similar to events in the U.S. in the '80s and '90s, said John Phillips, chairman and CEO for World Access. "We are just a consolidator."

Acquisitions will continue at a furious pace, Phillips said. "This whole thing is going to be over in the next two years in Europe," he said, referring to the consolidation of more than 400 resellers in Europe.

Considering MCI WorldCom is an investor in World Access, "World Access is clearly aligned with [MCI] WorldCom's interests," said Vik Grover, research analyst of core and emerging carriers for Kaufman Bros. "They are rolling up the Tier 2 carrier market, building a large entity, which could be acquired by anybody if not by MCI [WorldCom]."

Despite its consolidator role, World Access plans to offer bundled voice, data and Internet services to small and medium-sized businesses in Europe using the human resources and systems inherited from the three purchases.

"We needed a solid pan-European network foundation to gain cost savings and ultimately provide customers with more services," said Nancy de Jonge, director of investor relations for World Access.

The three carriers combined will enable World Access to step up its European presence. "With LDI, I've got a new sales organization and a customer care group, which we needed as well," Phillips said.

STAR brings to World Access its interconnection agreements with Deutsche Telekom, Phillips said. "In Germany, they have a lot of strategic cities linked into Deutsche Telekom. Those licenses take about two years to replicate."

STAR also provides World Access with eight switching sites in Germany, three other sites in Europe and a domestic network purchased from Qwest Communications with six sites across the country.

"Our networks fit together superbly," said Michele Wolf, vice president of investor relations for STAR. "They've got a nice deep management bench and great contacts on Wall Street," she said, adding that STAR's biggest benefit will be World Access' capital. "We've been constrained by our capital position. This means new growth."

WorldxChange will provide World Access with presence in the U.K., Germany, Belgium and the Netherlands, as well as Internet-based management systems that incorporate all aspects of retail services.

The past 90 days have been busy for World Access. "We've sold $600 million in equipment business and spent almost $2 [billion] to $2.5 billion," Phillips said. The company expects to triple its revenues as it continues its acquisition strategy.

"There's a great company in the making, but they need to let the dust settle so people know what they are doing," Grover said.