iBasis Acquires KPN International Wholesale Business

International wholesaler iBasis Inc. announced on Wednesday it plans to acquire the international wholesale business from Royal KPN N.V., the national carrier of The Netherlands, forming one of the top five international wholesale voice providers with combined 2005 revenue of more than $1.1 billion and 15.7 billion minutes.

In addition, KPN will become a 51 percent majority stockholder in the combined company. It will pay $55 million in cash in return for approximately 40 million shares of iBasis common stock. The transaction, which is subject to approvals by regulator and iBasis shareholders, is expected to be completed by the end of 2006.

Following iBasis’s acquisition of KPN Global Carrier Services, Ofer Gneezy will continue to serve as president and CEO, and Gordon VanderBrug will continue to serve as executive vice president. KPN will appoint two non-executive members and two independent members to the iBasis board of directors. The company headquarters will remain in Burlington, Mass.

“The merger between Royal KPN's wholesale international division and iBasis appears to be a win-win, win-win with the two companies as well as customers and investors all gaining advantages,” said Dr. Judy Reed Smith, CEO at Atlantic-ACM, an industry research and consulting firm covering wholesale markets. She noted iBasis has earned consistently high ratings from its customers in ATLANTIC-AMC’s Global Wholesale Report Card.

“The merger gives KPN investors and customers the advantage of these strengths in addition to the all-IP network and broad, low-cost landing arrangements they target. iBasis wins a broadened customer base to leverage its strong operations, is positioned with the largest global players, and can run without debt.”

Gneezy says the combined company – almost double its previous size – expects to achieve $10 million in synergies from cost of revenue and operations. Specifically, he said, the company will leverage its additional volume to achieve lower termination costs, and it will integrate its operational system for additional cost efficiencies. The company has not offered guidance on staff, but Gneezy said he expects some of the KPN Global Carriers Services staff will join the executive team and ranks at iBasis.

Gneezy said the company has been looking for a match for some time. “In international wholesale it’s been clear for some time that the industry is commoditizing and for players to become the more significant in this market, they need significant scale and efficiency,” he said, noting the company has achieved respectable organic growth, logging nearly 50 percent year-over-year growth for the past two years.

iBasis has a global VoIP network of more than 1,000 PoPs in more than 100 countries. It has originating and terminating agreements with more than 400 carriers worldwide.

“We were already in the top 10 rank of international carriers,” added Gneezy. “But to get to be Tier 1 size – one of the top three – was going to take a very long time to do on our own.”

By acquiring KPN Global Carrier Services, iBasis gains a complementary geographic footprint and customer basis. KPN Global Carrier Services operates primarily in Europe and Asia while iBasis is strong in the Americas and Asia. KPN Global Carrier Services also brings an established business in mobile services, including relationships with more than 100 mobile operators, as well as international traffic from KPN’s Belgian, Dutch and German operations.

On the network side, iBasis has built a VoIP wholesale minutes business while KPN Global Carrier Services has a TDM-based business with both spot contracts and bilateral agreements, said Gneezy.

“We look at the TDM network as an opportunity because we have deep experience in VoIP,” explained Gneezy. “So compared to the rest of the industry that is still thinking about how to do a transition from TDM to VoIP, putting those two entities together joins a big pool of traffic with technical capability to covert it to VoIP quite easily.”

He said the plan is to move the traffic to VoIP in an effort to become an all-IP network.

ATLANTIC-ACM www.atlantic-acm.com
iBasis Inc. www.ibasis.com
Royal KPN N.V www.kpn.com