KPNQwest files for bankruptcy protection

Business Internet services company KPNQwest has filed for protection from creditors as it continues to work with banks and...

Business Internet services company KPNQwest has filed for protection from creditors as it continues to work with banks and advisors to find alternative funding, the company said in a statement.

"It is business as usual and we will continue serving our customers. This is a pure financial matter, we have to deal with our debt," said KPNQwest spokesman Koen van Zijl.

KPNQwest's debt is estimated by analysts to be about €2.3bn (£1.5bn).

The protection, under Dutch moratorium law, is similar to Chapter 11 bankruptcy protection in the US, with the main difference being that it only protects a business from unsecured creditors and is granted for a limited time, KPNQwest said. The protection is intended to give a company breathing space to resolve financial problems by suspending the need to make payments.

KPNQwest's supervisory board, made up of two representatives of Qwest Communications International, two independent directors and one representative of Koninklijke KPN, resigned with immediate effect.

KPNQwest is a pan-European provider of data communication and hosting services. The company owns and operates a fibre-optic data network that connects 60 European cities. Customers include Hewlett-Packard, Foot Locker and Dutch airline KLM.

Customers are being informed about KPNQwest's situation, with the largest customers being updated by phone, said spokesman Piers Schreiber. He added that customers had been supportive of KPNQwest and that no customer had switched away.

KLM, for which KPNQwest provides a VPN, said it does not deal directly with KPNQwest, but has a contract with Koninklijke KPN, the largest phone company in the Netherlands and also a KPNQwest shareholder. KLM is investigating the consequences of a possible KPNQwest bankruptcy.

"Our information services department is making sure, through KPN, that we won't be adversely affected by a KPNQwest bankruptcy," a KLM spokesman said.

Mikli, a Paris eyewear designer that uses KPNQwest for a VPN that connects its locations in France, Norway, Belgium, Italy and the US, is not worried about the situation at KPNQwest, said Nicolas Sibon, network and telecommunication manager at Mikli.

"We don't have a problem with the status of KPNQwest. They have reassured us that there is no problem for the immediate future of the business," he said. "It is not an emergency. If KPNQwest should lose the business, someone else will, very quickly, replace them."

Last week, KPNQwest issued a statement containing a strong warning about its precarious financial position, which led research group Gartner to advise the company's customers to look around for an alternative supplier.

Gartner analyst Lisa Unden said the filing for protection is "not a surprise". She now expects KPNQwest to be sold in pieces.

"I believe KPNQwest will be dismantled and bought up by other providers looking to get into the geographic regions KPNQwest is in," she said.

Maureen Coulter, another Gartner analyst, repeated the advice to KPNQwest customers to look out for another service provider.

"Those customers who have to renew their contracts within the next six months should start looking at another service provider now. Customers with longer-term contracts should look at any exit clauses that may be in the contract, or may start negotiations with KPNQwest to exit the contract," she said.

However, customers need not worry that service will come to a sudden stop, as the customer base is KPNQwest's most valuable asset, Coulter said.

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