Outlook: Atlantic gusher

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The Independent Online
HERE IS another of those telecoms deals guaranteed to make your ears ring. Marconi (still better known to most of us as GEC) yesterday snapped up a 27 per cent stake in Atlantic Telecom, a Scottish telephony business with fewer than 50,000 customers, but lots of accumulated losses and an even bigger ambition to match.

At 10-times sales, the effective price being paid by Marconi for its punt on Atlantic might seem a touch extravagant, but such is the excitement that surrounds this sector that by the end of the day Marconi had already been repaid several times over. At the start of the day, Marconi paid pounds 50m in cash for shares worth pounds 172m. By the close of play the stake had rocketed in value to pounds 317m.

You would be forgiven for thinking Atlantic must have discovered the Holy Grail, or at the very least the telecoms equivalent of the Spinning Jenny, to justify such a surge. Not so. In fact the wizardry on which Atlantic Telecom's service is based is the same fixed radio access technology that brought poor old Ionica crashing to earth.

To be fair, there are some important differences. Whereas Ionica was the vehicle for the boffin who invented the technology, Atlantic is run by hard-nosed businessmen. And whereas Ionica had an obligation to build a national network - resulting in capacity being sacrificed for coverage - Atlantic has been able to cherry pick the big cities.

That said, the Marconi deal will involve a step change for Atlantic, taking it from a small local loop player to a national operator with a fibre optic broadband network to fill. And as Ionica discovered, no amount of large well-heeled shareholders are not a guarantee of survival. Nevertheless, the business case is undoubtedly more soundly-based than Ionica's even if the share price defies rationale explanation.