Interoute, a London-based telecoms network provider, confirmed on Monday that it had secured a strategic partnership with the government of Dubai to help it expand into the Arab world.

Dubai Holding, an entity managing state assets for the Persian Gulf emirate, has paid €125m ($150m) for a stake in unlisted Interoute, buying an undisclosed number of shares from majority shareholder the Sandoz Family Foundation of Switzerland.

Interoute owns and operates 23,500km of fibre-optic networks, providing voice and data connectivity to 61 cities in 19 countries concentrated in Europe and the US.

Though loss-making since it emerged from administration in 2002, it has renegotiated €1bn of debt with creditor Alcatel. Executive chairman Jim Kinsella said he expects to be “ebitda positive” by the first half of 2006. Dubai Holding has invested in Interoute on behalf of Tecom, a subsidiary that operates technology, media and academic free zones in Dubai.

Although telecoms in the United Arab Emirates are currently monopolised by state-owned Etisalat, Tecom has been allowed to offer fixed line services within the zones it manages.

Tecom declined to comment on its interest in Interoute, but in a June interview director-general Ahmed bin Byat told the FT he was keen to launch an independent telecoms operator to rival Etisalat.

The federal UAE government has said it will issue a second national telecoms licence in 2006. According to Mr Kinsella, Tecom already operates a fibre network between Dubai and London, and through the strategic partnership will now be able to link into the continental European and US markets served by Interoute. In return, Interoute will gain local support as it seeks to expand into the Middle East and north Africa.

“For our part we want to look east rather than west,” Mr Kinsella said.

“As far as Tecom’s concerned, I believe we are the first step in a much larger telecoms strategy.”

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