Phone Giants in Global Pact
In a bold bid to woo high-spending multinational firms and capitalize on the burgeoning Internet, British Telecom and AT&T; Corp. said they would form a global joint venture to serve the communications needs of big business.
The No. 1 European and U.S. phone companies said they would begin exiting existing partnerships today and seek government approval to combine their international networks in a venture that would offer long-distance service, high-speed Internet access, unified billing and other products to multinational companies.
The deal is initially targeted at the world’s largest corporations, whose explosive demand for international phone lines and data traffic is expected to create a $200-billion market in 2007, compared with just $40 billion this year. The two carriers say they will develop a new global network based on Internet technology and use their immense size and cost efficiencies to lure big companies to the as-yet-unnamed joint enterprise.
“By positioning ourselves at the forefront of the global information age, we will maximize opportunities to grow revenues and enhance profits,” said Iain Vallance, chairman of British Telecom. Vallance will serve as chairman of the joint venture, which will be based in the United States.
The AT&T-BT; venture would compete against partnerships formed in recent years by WorldCom Inc., MCI Communications Inc. and Telefonica de Espana as well as Sprint Corp., Deutsche Telekom and France Telecom.
Although aimed at multinationals at first, the $3 billion in assets that AT&T; and British Telecom plan to pledge to the new endeavor could eventually produce lower prices and new products for consumers as well, A. Michael Armstrong, chairman of AT&T;, said in an interview.
“As we drive the cost down and services up, this will extend to consumers . . . in terms of lower rates,” Armstrong said. The AT&T; chief said he envisions the two companies eventually being able to offer a universal global wireless phone, a worldwide 800 number for toll-free inbound calling from any country and personal teleconferencing.
The partnership marks an aggressive return to the world of deal-making by British Telecom, which last year lost out to upstart WorldCom Inc. of Jackson, Miss., in a high-stakes bidding war for No. 2 U.S. long-distance carrier MCI. The venture could also help burnish AT&T;, which saw its stock price plummet more than 15% after it offered $46.5 billion in stock to buy cable giant Tele-Communications Inc.
The deal was applauded by analysts, who saw it as a long-overdue return to the front lines of the global telecommunications revolution by two companies that many say risked becoming also-rans.
“Investors can breathe a sigh of relief in that AT&T; seems to have finally gotten religion in terms of a global strategy,” said David J. Roddy, chief telecommunications economist at the Deloitte & Touche Consulting Group.
“Most of the economic growth is going to be outside the United States,” where there are many fewer telephones, Roddy added.
“This is a big deal for big business,” said David Goodtree, a senior telecom analyst at Forrester Research in Boston. “Building global communications networks is hard, painstaking work. AT&T; had a very weak global product set and distribution agreements with other carriers while BT had a great [global] product but they desperately needed a U.S. partner. This solves those problems.”
The deal still faces regulatory review from institutions such as the European Union, the U.S. Department of Justice and the Federal Communications Commission. The companies could be asked to limit certain activities in exchange for approval.
Besides bundling a variety of services to cut big corporations’ phone bills, the AT&T-BT; joint venture also aims to save corporations money by arbitraging the sky-high international long-distance rates that carriers pay one another.
Normally, if an AT&T; customer placed a call to, say, Turkey, AT&T; would pay a fee to the local Turkish telephone company based on the call traveling from the U.S. But with BT as its partner, AT&T; can hand off the call in Britain, where the toll rate is lower. Then British Telecom could take the call to Turkey at a lower European rate.
In addition to joining their networks, the companies said they would invest $500 million each in high-technology start-ups to work on cutting-edge communications technologies.
To complete the deal, British Telecom will buy back MCI’s stake in the Concert joint venture they formed in 1994. AT&T; will become a nonexclusive Concert distributor in the U.S.
AT&T; in turn will end its WorldPartners alliance, which links AT&T; with 18 overseas carriers, and not extend any existing contracts beyond 1999. AT&T; will drop out of Unisource, its joint venture with the Swiss, Swedish and Dutch national phone companies.
