With its acquisition by private equity now complete, Tinet now begins a new life on independent footing. Rising out of the ashes of the Tiscali empire, their business plan starts out in the wholesale IP/MPLS market. Of all the top backbones, only Tiscali is a pure play. Cogent comes the closest to a parallel, but even then half their business is in enterprise metro access.
But wait a second… Is focusing on the wholesale IP and ethernet market all that great an idea? After all, there is a reason why there are no other pure wholesale IP/MPLS backbones, it has been a tough, tough business for a very long time. Meaningful differentiation is really hard to demonstrate in practice in the major markets, except via price. Traffic continues to grow, but prices continue to fall. And Tinet doesn’t bring large amounts of its own fiber to the table either, that I know of at least.
On the other side of the equation, Tinet starts out having been purchased for just €47M – so their backers don’t have a heck of a lot to lose. They have existing contracts with what is left of Tiscali and with various of its bits and pieces, and despite its troubles the IP transit market is still much healthier than it was after the last bubble. Demand and supply are basically in balance, with demand if anything starting to trail with the recent slowdown in carrier capex. Starting fresh at the bottom of this recession may give Tinet a lot of room to run as things get better and video starts really pushing bandwidth growth.
Will they make it? Heck, I hope they do – because if they do then the rest of the sector will probably be tearing up the track as well. Quite simply, the bet Tinet’s backers are making is simply that explosive bandwidth demand is around the corner, and we could all use a bit of that right now.
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