US giant will fight pounds 13bn BT takeover

AT&T could spoil the party with protest on access

BT's planned takeover of MCI ran into heavyweight opposition yesterday as AT&T, the largest telecommunications company in the US, made clear that it will fight tooth and nail to block the $21bn (pounds 13bn) merger.

As Sir Peter Bonfield, BT's chief executive, and Gerald Taylor, his opposite number at MCI, celebrated their "strategic merger" with champagne yesterday, AT&T was already preparing its formal complaint to the US regulator, the Federal Communications Commission.

Robert Allen, AT&T's chairman, will claim the takeover should be prevented from going ahead on the grounds that other US operators still do not enjoy free access to British markets. He said: "New entrants and carriers who want to serve customers still face significant barriers. BT still controls more than 90 per cent of all local telephone connections."

AT&T launched a service to UK business customers in January and to households in June, but BT's control of the local loop means residential customers can only access its long-distance network indirectly through dialling a special code.

It emerged that AT&T has already briefed FCC officials on the problem during a recent visit to the UK, which also included a meeting with Don Cruickshank, the head of the watchdog Oftel.

Under US law BT must get the FCC's agreement to increase its stake in MCI above 25 per cent. The British group bought its 20 per cent shareholding in MCI three years ago for $4.3bn. The FCC will examine whether the UK is as open to competition as the US, which is in the process of freeing up the $100bn local telephone market.

In a fanfare of publicity BT yesterday confirmed its agreement to buy the remaining 80 per cent of MCI it does not already own, creating the world's fourth-largest telephone group with combined sales of $42bn.

The new group will be called Concert, after the two companies' joint venture in business communications, with headquarters in London and Washington. BT and MCI will become subsidiaries of the new holding company and will continue to use their brands for existing services in local markets.

BT claimed the increased size of the group would enable it to accelerate the pace of growth already achieved in the US long-distance market by MCI.

"This merger is all about greater growth. We quicken the pace of the race we began with the joint venture," Mr Taylor argued. The first step would be for MCI to expand into the US local phone network, first to business customers and later to households.

Mr Taylor agreed that one of BT's main contributions would be its massive capital strength.

Merging operations should also bring cost savings of pounds 1.5bn over the next five years, and some pounds 500m annually after that. The reductions would come through merging global marketing divisions, the pooling of some administrative functions, greater muscle when negotiating supply deals and pounds 160m a year lower investment spending.

Sir Peter said there would be some job cuts in the 180,000 world-wide workforce, though these would be at least matched by new jobs created.

The task of integrating the organisations will fall to Bert Roberts, MCI's chairman. When the takeover is completed next autumn, regulatory hurdles permitting, it will have two co-chairmen, Sir Iain Vallance from BT and Mr Roberts.

Sir Peter will become chief executive of Concert with Mr Taylor below him as the president and chief operating officer. A significant beneficiary is Sir Colin Marshall, chairman of British Airways, who becomes Concert's non-executive chairman. He joined BT's board in 1995.

The deal could also herald a pay bonanza for top executives in both firms. A special pay committee will examine salaries in the new concern.

BT denied any plans to sell the stake which Concert will hold in Rupert Murdoch's News Corporation, through the 13.5 per cent stake currently owned by MCI. However in New York last night MCI said it was redefining its relationship with Mr Murdoch and would cut its stake in its American Sky Broadcasting joint venture with News Corp from 50 per cent to 20 per cent.