MCI, BT Join Spanish Firm in New Alliance
In a blow to rival AT&T;, MCI Communications Corp. and British Telecom announced Friday they will extend their global network by forming an alliance with Telefonica de Espana, Spain’s national phone company.
The deal would give the trio of telephone partners a huge presence on three continents--North America, Europe and now the hot South America market that is expected to nearly double in size to $53 billion by 2000.
The alliance, announced in Madrid, comes as BT nears approval on its pending $25-billion bid to acquire MCI to form a global telecommunications services company to be named Concert.
Latin America, Asia and other emerging markets where economic growth is rising but phone service is patchy has attracted the interest of hordes of telecommunications firms in recent years, including BellSouth Corp. and AT&T.;
But the alliance is likely to produce few benefits for Latin and South American residents who face high prices and waits of a year or more for phone service. It is also not likely to significantly lower long-distance charges for overseas dialers trying to reach the region.
Instead, the alliance is targeting businesses that need to communicate, send data and teleconference over long distances.
“The opportunity specifically being addressed here is the selling of . . . services to multinational businesses,” said David Goodtree, a telecommunications analyst at Forrester Research in Cambridge. “It’s not about selling telecom services to consumers; they are targeting the top 2,000 corporations in the world.”
Under terms of the deal, Telefonica--which had $15.2 billion in revenue last year--will have an option to buy a 1% stake in British Telecom worth an estimated $450 million. BT, in turn, would be able to buy 2% of Telefonica, worth about $445 million at current values.
Telefonica also gets the right to buy up to a 33% stake in Avantel, the high-flying joint venture MCI and the Mexican financial group Banamax launched in August to give Mexicans a choice of long-distance carriers for the first time.
Analysts had expected AT&T; to pursue Telefonica for its Latin America connections, since Telefonica is a partner with AT&T; in a European telecommunications alliance called Unisource.
AT&T; issued a statement Friday saying the company “regrets Telefonica’s decision to pursue their own interests at the expense of their partnership with AT&T; and Unisource.”
But with the successful wooing of Telefonica by BT and MCI, analysts say AT&T; is now under pressure to find a carrier with strong international ties. Analysts speculate that AT&T; may be forced to resume negotiations with Cable & Wireless, a London-based telephone carrier with a sizable presence in Asia.
But while the alliance with Telefonica significantly strengthens the hand of BT and MCI in Spanish-speaking South America, Portuguese-speaking Brazil remains elusive because the Brazilian government has not yet privatized the nation’s phone system.
“Brazil is the great unwon prize here,” said Raymond E. Liguori, a telecommunications analyst for Merrill Lynch who specializes in Latin America. “That market is still controlled by the government. It has taken a very long time to privatize that [phone] market. But we are now past the point of whether it will be done. It will be done, probably by 1999.”
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