Italian Alliance With AT&T; Is a Good Call
Abig deal between American Telephone & Telegraph and Italy’s state-owned telephone company received little publicity when it was signed in Rome last week, but it can tell you more than all the headlined takeovers about how world trade and technological competition really work today and will work tomorrow.
The news is good. AT&T; won a big victory in Europe as the Italian government gave it the nod to be the prime foreign contractor for the modernization of Italy’s phone system. The government plans to spend $28 billion in the next four years to upgrade telecommunications.
The deal promises not only substantial business for AT&T; but, as important, a breakthrough in overseas markets. Telecommunications is hot. Virtually every country is spending heavily to install new central switches--the powerhouses that route calls to the next town or the house next door--and improved transmission lines. Competition for supply contracts is intense.
AT&T;, the company that made U.S. telephone service the world’s best, has been frustrated overseas by foreign competitors playing politics and by its own misjudgments. So the Italian deal is significant.
Yet you’d hardly know that back home. The price of AT&T; stock, which is owned by more shareholders than any other, scarcely budged last week; the Rome agreement was a footnote in the news.
But then, the deal was unusual. For one thing, AT&T; didn’t sell anything last week. There was no contract saying Italy would buy so many AT&T; switches. In fact, AT&T; made an overseas investment. It paid about $150 million for a 20% share in Italy’s government-owned telephone manufacturer, Italtel, while the Italian government made a similar investment in an AT&T; venture in the Netherlands.
AT&T; called the Italian deal an alliance. “The agreement means that Italtel and AT&T;’s Bell Laboratories will work together to develop, manufacture and market telecommunications equipment in Italy and around the world,” William Marx Jr., an AT&T; executive vice president, explained.
Politics of Progress
What it means is that the Italians have bargained their way into a partnership with the renowned Bell Labs, that Italy won’t be left behind technologically in the information age, that there will be high-tech jobs for Italian youngsters. The deal that brings work to Bell Labs in Holmdel, N.J., and Lisle, Ill., will also bring work to Italtel in Rome.
Is that cause for concern? No, it’s the way the world works. Other bidders, Siemens of West Germany, L. M. Ericsson of Sweden and Alcatel of France, would have welcomed an arrangement like AT&T;’s. Siemens wanted the prize badly enough to play European politics--its executives told European audiences they would lose jobs and factories if they let the Americans in.
Two can play that game, of course. When Italian Prime Minister Chiriaco DeMita visited the United States last year, President Ronald Reagan put in a word for the American telephone effort, and President Bush reportedly followed up with another mention this year.
But politics is only part of the game. The reason AT&T; won, analysts say, is that its technology is more advanced than that of any other world supplier, and it was willing to share and work with the Italian company.
The benefits aren’t all one-sided. “The hook-up with the Italians is a good deal,” said analyst William Rich of Northern Business Information, a research firm. “It could help AT&T; in Spain and Greece and other countries.”
So, reflections are in order on trade and competitiveness in the age of global business. In strictly money terms, the Italian deal could mean $700 million to $1 billion a year in sales for AT&T;, (which has $36 billion in annual revenues), but only some of that overseas business will show up in U.S. export statistics. Most likely, a trade deficit will continue and experts will say U.S. industry has lost its fastball when, in fact, it just struck out the side.
Also, for all that economists debate currency’s importance to trade, the dollar had virtually no role in this victory. Italy, which is spending 7% of its gross national product to upgrade its telephones, is looking for the best product, not the cheapest.
How can a company, or a country, be sure of having the best? By encouraging progress in its home market. Some of the “technology” AT&T; is supplying to Italy, for example, is called “intelligent network capabilities”--but we know them better as 800 numbers. That’s right, the 800 numbers Americans take for granted are an innovation overseas. That’s one example of why world markets present opportunities for U.S. companies.
But other nations want to progress, too. They want to be participants in the information age, not merely customers. Import-export figures don’t account for that, and economists don’t yet understand it. But world trade in the information age is going to be a game of helping other countries to help themselves. AT&T; set an example last week of how the game will be played.
