BT hints at new link-ups

Everything to play for as phone companies jostle for power

BRITISH Telecommunications' global president and chief executive, Alfred Mockett, says the billion-dollar alliances that have been created in the telephone industry are not set in stone. He predicts that allegiances will shift and change as competition intensifies for exploding business communications revenues.

Mr Mockett, who runs BT's international division, would not comment on speculation that BT plans to create a joint venture with AT&T, America's biggest phone company, in the wake of BT's now defunct plan to buy MCI Communications, the No 2 US long-distance phone company.

However, he expects some of the alliances set up to target lucrative multinational companies will add new partners, as others shift allegiances in the battle for the most highly-prized segment of the $1 trillion telecommunications market. "I anticipate a certain flexing and tweaking of business models among the global alliances, and changes in their constituencies," he said. "These are living, dynamic organisms."

Phone companies have formed partnerships to offset declining revenue from local operations as deregulation intensifies competition worldwide. BT and AT&T currently are in different alliances. BT shares have risen 2.3 per cent in the last three days - adding to an 11.7 per cent increase in the previous 10 days - after AT&T's chief executive Michael Armstrong told analysts on Wednesday he plans to buy outside the US after AT&T digests its proposed $45.8bn (pounds 28.6bn) acquisition of TeleCommunications Inc, the No 2 US cable company.

The global telecommunications industry is in the throes of feverish merger and acquisition activity. Deregulation measures agreed at the World Trade Organisation and introduced earlier this year threw open $1.2 trillion in phone and computer data traffic revenues by the year 2000. Those factors, combined with higher than expected growth predictions in data and mobile communications are driving speculation and share prices. BT's shares have risen 57 per cent since January and the UK telecommunications index has outperformed the FT-SE 100 index of top British companies by 48 per cent since January.

"Telecoms stocks are starting to behave like information technology stocks where people increasingly don't have a firm view on what the future holds," said Alan Lyons, telecommunications analyst at ABN Amro.

BT is not totally alone in expecting changes of ownership.

Telefonica de Espana, the dominant Spanish phone company last week sought and won shareholder approval to block hostile takeovers as it embarks on expansion that could make it desirable to competitors. It limited shareholders' voting rights to 10 per cent of shares, regardless of the size of stakes. Telefonica plans to join WorldCom once its $43.9bn acquisition of MCI closes.

BT started a move by phone companies around the world to establish partnerships when it formed Concert with MCI in 1993. AT&T set up a series of loose partnerships with phone companies, called AT&T WorldPartners, which unlike Concert, did not build infrastructure to carry more advanced services than are possible on ordinary phone lines. France Telecom SA, Deutsche Telekom AG and Sprint Communications set up a three-way alliance, although the Europeans have not exercised their right to buy more of Sprint than the 10 per cent they each own. And the dominant phone companies in the Netherlands, Sweden and Switzerland exchanged equity to create Unisource NV, which is part of AT&T's WorldParters venture.

Meanwhile, having lost MCI to WorldCom, BT said it will establish an alternative plan to get presence in the US market. "We have a twin-fold approach in the US. We're looking to supplement our distribution channels for Concert to address multinationals' needs, and we're also reviewing our options for direct inward investment," said Mockett. "Those can be done in conjunction or separately through one or multiple partners."

He said Concert will break even this year on $1bn of revenues and it is growing at a rate of 40 to 45 per cent per year growth, $1bn of revenues this year.

Mr Mockett said BT is looking at internet acquisitions as demand for data communications grows and companies connect to the world wide web. He declined to say whether the company was bidding for MCI Communications's internet assets.

Mr Mockett said he believes global partnerships that exchange traffic between different country networks rather than building separate global networks will not survive in the long term. "Some rely on existing correspondent relationships which is a low-cost strategy but not enduring over time."

Copyright: IOS & Bloomberg