Equant N.V.

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Equant N.V.

21-23 Gatwickstraat
Sloterdijk
1043 GL Amsterdam
The Netherlands
Telephone: ( + 31) 20-581-8283
Fax: ( + 31) 20-688-0388
Web site: http://www.equant.com

Public Company
Incorporated: 1998
Employees: 10,900
Sales: $2.39 billion (2001)
Stock Exchanges: Euronext Paris New York
Ticker Symbols: EQU (Euronext); ENT (NYSE)
NAIC: 334290 Other Communications Equipment Manufacturing; 334111 Electronic Computer Manufacturing; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 423430 Computer and Computer Peripheral Equipment and Software Merchant Wholesalers; 513390 Other Telecommunications; 541512 Computer Systems Design Services

Equant N.V. is emerging as a leading global telecommunications services provider for the beginning of the 21st century. The Amsterdam-based company provides data and IP network and integration services on a worldwide scale—the company operates in 220 countries, and is capable of providing local support in some 190 countries, giving it the widest reach of any telecommunications provider. Founded as part of the SITA airline network cooperative, Equant still looks to the air transportation sector as one of its primary operating areas, with nearly 730 airlines, reservations systems, airports, aerospace companies, air-freight companies, and government clients accounting for 20 percent of Equant’s revenues. Equant has also built up a strong corporate business, counting 600 of the world’s top corporations among its clients. Unlike most of its competitors, many of which are facing bankruptcy with the collapse of the telecommunications market in 2001, Equant has avoided costly infrastructure investments, preferring to rent bandwidth according to its needs. This policy has enabled the company to maintain a solid balance sheet with very little long-term debt. In 2001, Equant merged with France Telecom’s Global One—the combination is expected to boost the company’s revenues to an estimated $3 billion for 2002. The merger agreement also gave France Telecom a 54 percent ownership stake in Equant, which continues to be listed on the New York and Euronext Paris stock exchanges. Equant is led by Didier Delepine, president and CEO.

Connecting Airlines in the 1950s

In 1949, a consortium of European airlines—including Air France, KLM, Sabena, Swissair, British European Airways and British Overseas Airways, AG Aerotransport of Sweden, Det Danske Luftfartselskab, and Det Norske Luftfartselskap—sought to combine their communications networks. The partners formed Société Internationale de Télécommunications Aéronautiques, or SITA, as a not-for-profit entity to govern deployment of the shared network. SITA’s original mission was to provide direct communication linkages among European airports—although U.S. carrier TWA was also a founding member of the alliance—and as such became a pioneer in developing data communications networks.

SITA’s first telecommunications center started up operations at the Rome, Italy airport, connecting airports in Paris, Nice, and Frankfurt. Over the next decade, SITA rolled out its network across all of its member companies, which grew to 52 airlines by 1957. By then, the SITA network, which based transmissions around perforated tape and teleprinters, operated communications centers in 75 airports.

By the end of the 1960s, SITA had begun to automate its network, adding computer-based message switching in 1966, before rolling out the world’s first worldwide packet switching network—which enabled messages to be broken up into packets, providing for more efficient use of the network’s bandwidth—in 1970. By then, SITA’s membership ranks had swelled to 136 members.

SITA added interactive capabilities to its network in 1971. The following year, as its membership continued to grow, the company launched subsidiary service International Telecommunications Services, or ITS, charged with offering maintenance services as well as providing SITA members with network integration services. ITS was to become one of the core elements of the later Equant. SITA moved into the United States in 1974, with the launch of its Information Processing Center in Atlanta. The company also debuted a networked passenger reservation system, GABRIEL, that year.

By the beginning of the 1980s, SITA’s membership had grown to 340 airlines, which transmitted some two billion messages per year, straining the group’s existing capacity. In 1981, the company rolled out its third-generation network, the Data Transport Network, which provided growth overhead for the next decade. SITA debuted a second Information Processing Center in 1983, based in London; the following year, SITA launched its first air-to-ground data transmission system, VHF AIRCOM. In 1984, SITA also debuted its CUTE system, which allowed airlines to pool check-in terminals.

Global Telecommunications Provider in the 1990s

At the end of the 1990s, SITA controlled a vast telecommunications network which reached into more than 190 countries—the organization’s not-for-profit status had enabled it to skirt the stringent regulations maintaining domestic monopolies that governed the rest of the global telecommunications industry. SITA was well-positioned to take advantage of the wave of deregulation that swept through the airline and telecommunications industries in the 1980s and early 1990s.

In 1989, SITA extended its membership to the broader air transportation industry, signing on computer reservations systems, tour operators, air freight forwarders, airport authorities, and aerospace manufacturers. By the end of that year, membership grew again, to 385 members. Meanwhile, SITA had also begun exploring means of rolling out its network services to a still broader, corporate market. As the company signed on its first corporate customers—typically globally operating companies attracted by SITA’s presence in nearly 200 countries—SITA rolled out its fourth-generation network, the Mega-Transport Network, in 1991. In that year, SITA formed a new subsidiary, Scitor, which became responsible for its non-airline integrated network services operations.

Two years later, SITA boosted its network integration offering with the acquisition of software group Novus, which specialized in transaction processing applications. The acquisition filled out the commercial and technical expertise of SITA’s ITS and Scitor subsidiaries, allowing the company to provide a full service network integration package to its corporate clients. Meanwhile, SITA continued to expand its airline-industry operations, deploying the World Tracer baggage tracking system in 1991, rolling out its CUTE 2 terminals system and debuting an air-to-ground telephony system, SATELLITE AIRCOM, in 1992, and, in 1995, launching the AeroNet intranet system for the aerospace and air transport industries. In that year, SITA also extended its network offering to include voice transmission as well as data.

SITA’s success in attracting corporate clients—including rising Internet stars America Online and CompuServe, which were in the process of expanding their own networks worldwide—led the consortium to establish a dedicated corporate-oriented subsidiary in 1995. Called SITA Telecommunications Holdings, or STH, the new entity combined the operations of Scitor, ITS, and Novus. SITA then restructured its holding in STH, selling a 30 percent share to investment group Morgan Stanley Capital Partners for $200 million, and transferring a 10 percent stake to an employee shareholding trust. SITA remained STH’s majority shareholder—and its largest single client—yet STH now set off to conduct business as an independent company. Meanwhile, SITA and STH formed a joint venture that took control of SITA’s global network. Under terms of the joint-venture agreement, STH was given exclusive access to the network for its corporate clients, while SITA retained exclusive rights to employ the network for the airline industry. The partners began rolling out new generation IP (Internet-protocol) network capacity the following year.

STH started to rebrand its operations in 1997 in order to prepare for a future public offering. The company chose the brand name Equant—used to denote the theoretical “center” of space. The company initially applied its new brand only to its Scitor commercial arm, which became Equant Network Services. By the beginning of 1998, however, as STH’s three operating divisions began working more closely together, the company decided to rename all of its divisions under the Equant banner—with ITS becoming Equant Integration Services, and Novus becoming Equant Application Services. Lastly, STH itself changed its name, becoming Equant N.V., with Didier Delepine, who had originally joined SITA in 1976, taking over as Equant’s CEO.

Telecommunications Survivor in the New Millennium

Equant went public in July 1998, with a simultaneous listing on the New York and Paris stock exchanges, selling 30 million shares and raising $768 million. The company followed up the success of that offering with a secondary offering of another 42 million shares in early 1999. By then, the company’s share price had nearly quadrupled, valuing Equant at more than $22 billion.

Equant used some of its new capital base to expand its U.S. presence, buying up Atlanta-based Techforce, a network support specialist founded in 1990, for $73.4 million. Yet the company avoided the frenzy of mergers and acquisitions as the global telecommunications industry raced to consolidate at the end of the century. Equant also departed from the rest of its industry by carefully avoiding committing itself to building its own physical network, which meant the company was able to maintain an extremely low long-term debt portfolio. Nonetheless, Equant launched an infrastructure investment program worth some $100 million in 1999.

Company Perspectives:

Equant’s strategy is to leverage the resources and capabilities of the company, together with the backing by France Telecom, to expand its leadership role as the acknowledged leader for global data and IP solutions to large multinational businesses worldwide.

Despite the impressive scope of its global network—by the new century, Equant boasted operations in 220 countries, some four times that of its closest competitor—Equant remained a tiny player in the booming global telecommunications market, with revenues of under $400 million in 1998. This led the company to consider merger overtures from some of its larger competitors, starting with Deutsche Telecom in 1999. Those talks fell through, however. Then in 2000, Equant began talks with France Telecom. Later that year, Equant broached selling itself to California’s Global Crossing, but the negotiations failed when Global Crossing balked at Equant’s asking price.

Equant continued to go it alone in 2000, adding new successes, such as a joint-venture agreement with Reuters PLC to develop an IP network dedicated to the financial services industry. In another success that year, Equant reached an agreement to help China Netcom build a new national data network for that country. By the end of 2000, Equant had boosted its own revenues to more than $1.6 billion. The company once again entered talks with France Telecom, which was in the process of acquiring complete control of Global One—the data network services provider originally set up as a joint-venture by France Telecom, Deutsche Telecom, and Sprint in 1996.

Equant and SITA now reached an agreement with France Telecom to merge Equant into Global One. Under the merger agreement, France Telecom paid $3.5 billion to acquire SITA’s share in Equant—giving France Telecom a 54 percent stake in the newly merged company, which retained the Equant name. France Telecom also agreed to invest an additional $1.2 billion in the new Equant, which remained headed by Delepine.

Delepine quickly led Equant and Global One through the merger process, establishing the Equant brand across the whole of the operation by mid-2001. By the end of that year, the integration of the two companies was more or less complete—in time for the collapse of the global telecommunications industry. Yet Equant watched from the sidelines as its heavily indebted competitors filed for bankruptcy protection. Despite the collapse in its own share value, Equant remained one of the healthiest in the telecommunications market, with a long-term debt load of just $1 million, a war chest of nearly $500 million, and revenues expected to reach $3 billion in 2002, worth some 10 percent of the global market. The company, which had as its chief handicap a lack of brand recognition, especially in the key U.S. market, looked forward to picking up the pieces of the telecommunications industry—and establishing itself as a new heavyweight in the new century.

Principal Subsidiaries

Equant Application Services; Equant Integration Services; Equant Integration Services, Inc. (U.S.A.); Equant Integration Services, S.A. (Switzerland); Equant Network Operations; Equant Network Services; Equant Network Services International Corp. (U.S.A.); Equant Network Services Ltd. (U.K.); Equant Network Services Pte. Ltd. (Singapore); Equant Network Services, Inc. (U.S.A.); Equant S.A.S. (France); Equant U.S., Inc.; Radianz (U.S.A.; 49%); SITA Equant S.C. (Belgium; 50%).

Principal Competitors

Nippon Telegraph and Telephone Corp; Deutsche Telekom AG; British Telecommunications plc; SuezParis; NTT DoCoMo Inc.; Worldcom Group; Vodafone Group Plc; Suez Lyonnaise des Eaux; Granada PLC; KDDI Corp.; Bouygues S.A.; News Corporation Ltd.; AT&T Broadband L.L.C.; Cable and Wireless PLC; Cox Enterprises Inc.; Teleglobe Inc.; Telefonica Móviles S.A.; Telenor AS; Telia AB; Ameritech Corp.; Portugal Telecom SGPS; BELGACOM.

Key Dates:

1949:: SITA (Société Internationale de Télécommunications Aéronautiques) is formed as a partnership consortium among airlines to build a communication network for the European airline industry.
1972:: SITA creates International Telecommunications Services (ITS) to provide network integration services to its member companies.
1989:: SITA extends its membership to wider airline industry and begins promoting its network services to non-airline industry corporations.
1991:: Consortium founds Scitor to oversee its corporate network integration operations.
1993:: SITA acquires Novus in order to support ITS and Scitor with network integration software development.
1995:: SITA forms STH (SITA Telecommunications Holdings), which takes over as holding company for ITS, Novus, and Scitor.
1997:: STH rebrands Scitor as Equant Network Services.
1998:: ITS is rebranded as Equant Integration Services and Novus, as Equant Application Services; STH changes its name to Equant N.V. and makes public offering on New York and Paris stock exchanges.
2000:: Equant reaches agreement with France Telecom to merge into FT’s Global One subsidiary.
2001:: Equant and Global One merge, retaining the name Equant.
2002:: Equant forecasts revenues of $3 billion for the year.