International giant Telefonica (NYSE:TEF, news, filings) and pan-European network operator Interoute (news) announced a major strategic partnership today. Telefonica International Wholesale Services will use Interoute as its core fiber optic network provider for Western Europe, and on the flip side Interoute will be able to leverage TIWS's transatlantic connectivity and its footprints in the USA and especially Latin America.
In Europe, Interoute will provide a 100Gbps backbone network connecting the major cities of Europe, starting with the easy targets of London, Paris, Amsterdam, Dusseldorf, Marseilles, Madrid, and Barcelona. More cities are included in later plans, which makes sense since there's only the one German city on that list so far. What Telefonica gains here is the outsourcing of its transport infrastructure to a partner with whom it doesn't compete much, so that it can focus more on its main European competitors.
What Interoute gains in the short term is of course scale and revenue. As to their usage of Telefonica's transatlantic and western hemisphere assets, no details were mentioned. However, I have long wondered when Interoute might get tired of connecting every last corner of Europe and take its business model overseas. Perhaps this agreement will give them the tools necessary to take that leap at some point.
Actually, I wonder why Telefonica didn't just make a bid for Interoute directly - seems like that asset would be a perfect fit for them, giving them solid assets in their Western European markets and a leg up to the east as well. Or maybe they did, but Interoute's backers aren't selling.
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