AT&T;, BT Agree to Call Off Venture
After suffering through nearly two years of heavy losses and disappointing sales, AT&T; Corp. and British Telecommunications agreed Tuesday to end their ailing international communications services venture, a move that will cost the phone companies a combined $7 billion and 2,300 jobs.
Concert, as the effort was known, was launched early last year to create a global telecommunications powerhouse by combining the two companies’ corporate clients and selected network assets into one entity.
AT&T; said it will book $5.3billion in charges related to dissolving the venture in the third quarter, which ended Sept.30. British Telecom said its part in the breakup will reduce earnings by $1.7 billion. Both companies will essentially reclaim the network assets and corporate clients they contributed to Concert at the outset.
In addition, AT&T; will take over some British Telecom assets in Asia and full ownership of the jointly owned AT&T; Canada unit. The two companies will split the debt and tax liabilities as well as the cost of restructuring the business. The companies will continue to offer transitional Concert services for three years.
Despite the high cost of the corporate divorce, analysts heaved a collective sigh of relief.
“It’s about time,” said James Linnehan, an analyst at Thomas Weisel Partners. “It was a hindrance [for AT&T;], and in the longer term, they’re better off.”
Concert seemed doomed from the start, especially coming on the heels of a string of failed international partnerships involving AT&T;, Sprint Corp. and WorldCom Inc., Linnehan and others noted. Just last year, Sprint and Germany’s Deutsche Telekom backed out of a similar, three-way partnership with France Telecom. That venture, called GlobalOne, also was disorganized and losing money.
“They’re both cutting their losses on a flawed concept,” said Scott Cleland, a telecommunications analyst at Precursor Group. “There were doubts early on [because] global alliances are very expensive and have had a bad history.”
In announcing plans for Concert in 1998, AT&T; Chairman C. Michael Armstrong predicted that the venture would “contribute positively” to both companies’ earnings “from day one.” AT&T; said it expected operating profit of $1 billion in Concert’s first full year.
Instead, Concert was a financial failure from the outset, hampered by a cumbersome management structure and poor coordination between sales units. The problems grew larger as the economy worsened and aggressive rivals pushed prices sharply lower for once-lucrative international communications services.
With AT&T; and British Telecom facing layoffs, losses and wrenching corporate restructurings, neither company had the stomach to continue with the troubled project. Given the circumstances, industry analysts have expected the Concert breakup since early this year.
The companies expect Concert to post an operating loss of $800 million. Dissolving the venture also will be costly.
About 2,300 Concert employees will lose their jobs, and about 4,000 others will return to the payrolls of their respective companies. AT&T; said the corporate business it will absorb from Concert is profitable.
In New York Stock Exchange trading, AT&T; shares fell 15 cents to $19.05, and British Telecom shares closed down 10 cents to $48.50.
Scott Cleland, a telecommunications analyst
