Callahan Wins, KPN Loses in the Benelux

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Amsterdam, Netherlands-Two developments in the Benelux region last week should have a significant impact on this market's broadband business.

International cable investor Callahan Associates International LLC entered into exclusive talks with Belgian cable and telecommunications company Telenet Holding N.V. to acquire systems that account for a large chunk of the cable industry in the Flemish region of the country.

Elsewhere, the Dutch tele-communications regulator, known as OPTA, ruled that former state-owned phone company KPN Telecom N.V. should provide flat-fee wholesale and direct-billing services to its competitors, settling a dispute between it and WorldCom Inc.

The two cable companies said they intend to finalize the deal-which will see Callahan take a 55 percent stake in Telenet-by the end of the summer. They're also negotiating for Callahan to take a 55 percent stake in 10 municipally owned cable systems.

The municipal systems, as well as two local financial investors, are Telenet's current shareholders, and they are all selling pieces of their equity to Callahan.

Telenet and Callahan declined to put a price tag on the deal, because it is not yet finalized and because Callahan is preparing its own bond offering. Analysts value Telenet, together with the municipal cable systems, at 300 billion Belgian francs ($6.87 billion).

Callahan won out over United Pan-Europe Communications N.V. (UPC), another U.S.-investor-backed company that has been consolidating the European cable industry.

UPC and NTL Inc.-yet another operator with U.S. roots-put forth a joint bid that was reportedly greater than Callahan's. However, management and shareholders favored the Callahan proposal because it retains Telenet's Flemish base.

"In the UPC/NTL proposal, we would become a subsidiary of a multinational," Telenet chairman Gerard Van Acker said. Local politicians are also reportedly comfortable with the deal.

At the same time, Telenet and Callahan are already familiar with each other; MediaOne International-which, at one time, was headed by Callahan CEO Richard Callahan-owned a piece of the operator.

Flanders, the northern region of Belgium, is a densely populated market, in which cable penetration stands at around 95 percent.

Telenet also provides telephony and backbone services to six cable systems owned by local municipalities that wish to retain full ownership and control over their networks.

The arrangement makes Telenet the only company with broadband access to nearly all Flemish homes. It also provides an ideal environment for the development of an alternative telecommunications network.

In Holland, telecommunications regulator OPTA created more room for interactive services by ordering KPN to provide WorldCom and other Internet-service providers with access to its infrastructure for a flat fee, as well as to provide direct-billing services.

KPN currently charges metered rates for calls to local ISPs, as well as for voice calls. Unbundled access to KPN's local loop is available at locations where KPN has upgraded its network for broadband service.

KPN, however, said it will appeal the ruling. It added that its systems cannot handle the amount of traffic generated by a large-scale introduction of flat-fee ISPs.

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