British Telecom to Buy 20% of MCI; Global System Seen
MCI Communications Corp. and British Telecommunications said Wednesday that they will build a global telecommunications network that will accelerate the delivery of new services and create a formidable worldwide competitor to giant American Telephone & Telegraph Co.
The ambitious, two-part deal calls for British Telecom, the world’s fourth-largest phone company, to pay $4.3 billion for a 20% stake in MCI, the world’s sixth-largest carrier and the company responsible for breaking up AT&T;’s monopoly hold on the U.S. long distance market.
The two companies will also invest $1 billion to form an as yet unnamed venture to build a new telecommunications network around the world. Although multinational businesses are likely to be the venture’s first customers, consumers are eventually expected to benefit from the increased convenience and declining prices of international calling.
“We want to do on a global basis what MCI has already done in the United States,” said MCI Executive Vice President Eugene Eidenberg. “We think we can remake the international competitive landscape.”
The new alliance could pose the most serious threat yet to AT&T;’s position as corporate America’s preferred carrier for both domestic and international telecommunications traffic. The deal is the second announced in the last eight days proposing to create new international networks to carry voices and computer data for the increasing number of businesses with global operations. Last week, AT&T; said it would join with several other carriers in Asia and possibly Europe to offer a new global telecommunications service.
With the announcement of a second major partnership, the delivery of these services should be speeded as the players compete head-to-head for new markets. Although the latest deal poses an immediate competitive threat to AT&T;, analysts said it virtually ensures a lucrative role for U.S. telecommunications companies as the chief architects of the emerging global communications networks.
“Despite the nay-sayers, U.S. telecommunications companies are the most advanced in the world and the best poised to capture the new markets,” said Stephanie Comfort, a telecommunications analyst at the New York brokerage Morgan Stanley.
Analysts predicted that more alliances will be struck as telecommunications companies around the world try to make international calling and data transfer as easy and relatively inexpensive as placing a long distance phone call now is within the United States.
MCI executives acknowledged Wednesday that a third company, probably from a Pacific Rim country, will join the alliance with British Telecom to complete the global reach of their new service.
Currently, multinational companies face an irregular patchwork of telecommunications services and government policies when they try to place phone calls or share data among several operations in foreign countries. As a result, most companies resort to a costly grab bag of private networks and satellite transmission.
“It won’t happen overnight, but eventually inadequate telecommunications services will not pose the same barrier to businesses seeking to expand abroad as they do today,” said Craig Ellis, of Wheat, First Securities, a Richmond, Va., brokerage.
Investors responded to the deal by sending MCI shares up $1.625 to $54.375 each, an all-time high on the over-the-counter market. British Telecom shares dropped $1.125 to $65.125 on the New York Stock Exchange, while AT&T; shares fell 12.5 cents to $61.875 on the same exchange.
The latest agreement, which MCI termed the “telecommunications deal of the century,” gives both parties something they had long been seeking.
By partnering with MCI, British Telecom, the former government-operated monopoly whose home turf has been invaded by dozens of foreign companies, wins a major presence in the lucrative North American market that had previously been off limits to non-American operators.
Meanwhile, MCI, which has focused exclusively for the last 25 years on its effort to compete with AT&T;, gains a huge pot of money to finance its entry into the next generation of telecommunications, including wireless phones and video services. It also wins a powerful ally with which to pursue the emerging new international markets. British Telecom will own 75% of the new global telecommunications venture and MCI will control the remaining 25%.
Eidenberg said MCI will use its new cash to make alliances and acquisitions in the cable television, cellular and multimedia industries. “Five years from now you will see a very different MCI than you do today,” he promised.
MCI Chairman Bert C. Roberts said that despite the big British Telecom stake in MCI, the company will remain independent “with full operational freedom.” U.S. regulations limit foreign ownership of telecommunications companies to 25%.
MCI said it will acquire most of the business of BT North America, British Telecom’s subsidiary in North America. British Telecom will get three directors on the board of MCI and Roberts will join the British Telecom board. British Telecom said its $4.3 billion will purchase new common stock, with approximately $830 million to be paid immediately. The deal, which still must get the approval of the European Economic Community, is scheduled to be completed early next year.
British Telecom, Britain’s largest company, had been owned by the government, but since 1984 has been gradually converted into a private corporation. The British government is set to sell most of its remaining 22% in the company next month.
