Dynegy offers European network a new future - Company Business and Marketing

Iaxis, the failed pan-European wholesale carrier, is set to reemerge as a specialized content carrier following its acquisition by United States energy conglomerate Dynegy Inc., in an agreement expected to be finalized as CWI went to press.

And Iaxis is expected to form part of a new global content carrier business being put together by the Houston, Texas-based utility.

But some analysts say Dynegy's business plan to use the Iaxis network for content distribution will be as difficult to execute as Iaxis's original plan to sell wholesale bandwidth.

"A lot of other people are playing," said Susen Sarkar, analyst at Yankee Group Europe, in London. "I suspect Dynegy would need to continue with the wholesale model in some form for the next two years...the market for content delivery is not there yet."

Other carriers say the market is not ready for a dedicated content carrier, even though some are already offering streaming media services targeted at some vertical market sectors.

"I don't see a huge requirement from customers yet," said Pim Versteeg, executive vice president and general manager, broadband solutions, Carrier1 International GmbH, of Zurich. "It will be extremely difficult for Dynegy--or ourselves--to extend our footprint enough to cover the corporate market for streaming media and make the market profitable. Carriers should target certain verticals that already have requirements for these services."

Dynegy agreed to buy Iaxis out of administration in November, for a total of about $200 million. Iaxis creditors are expected to receive 40 cents in the dollar.

Steven Pearson, a partner at PricewaterhouseCoopers, which was a joint administrator to Iaxis Ltd., thinks Dynegy drove an efficient deal.

"In essence, they got all the network assets and interests," he said. "In effect, they got a complete data network that they could run from day one."

Analysts think the main value of the Iaxis network is in its readiness.

"A network in place has value and Dynegy bought staff, the network operations center, network management capability and some customers," said Yankee Group's Sarkar. "The network will have to be more robust to run content, although others would argue a wholesale network needs to be robust anyway."

Dynegy, which is aggressively entering the communications industry, spent much of last year on the acquisition trail. In August 2000, the company purchased privately held Extant Inc., of Denver, Colorado in a cash and shares transaction that valued Extant at $166 million.

Following the transaction, Dynegy established Dynegy Global Communications Inc., which owns 80% of a joint venture called Dynegy Connect LP, in partnership with Australian national operator Telstra Corp. Ltd. Telstra had previously owned 20% of Extant.

Content delivery appears to be at the heart of Dynegy's strategy for its new communications businesses. Recently, the company invested in media.net Communications Inc., of El Segundo, California, a media service provider that facilitates creation and distribution of all types of media and entertainment content. Dynegy joined Marconi plc, London and Paradigm Capital Partners in providing media.net with $25 million of second round funding.

Dynegy, in addition to providing equity financing to media.net, will be the company's preferred bandwidth supplier for U.S. and international video and Internet connectivity.

Both Extant and Iaxis network assets will be used to extend media.net's services globally.

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