AT&T, BT will start new international venture

Telecom one stop shopping will extend around the globe.

By Tim Greene and IDG News Service
Network World Fusion, 7/28/98

Two of the biggest names in telecommunications, AT&T and British Telecommunications plc, will team up to offer corporate customers one-stop shopping for international voice and data services, but it is still unclear how widespread their offerings will be.

AT&T and BT have grand plans for their unnamed joint venture, including construction of an international IP-based network that will connect 100 cities around the world at 200G bit/sec.

The network will serve as a backbone for corporate customers setting up global intranets, international call centers and multimedia networks, AT&T and BT said. The companies did not say when they will complete the network.

AT&T also said it will pull out of other international alliances.

That leaves the new company with AT&T's strong U.S. presence and BT with its strength in Europe, but with neither company able to offer much in Asia or Latin America.

The new company will draw heavily on the services of Concert, the existing international joint venture between BT and MCI. The joint AT&T-BT joint venture will focus on three areas:

Voice and data services that will combine AT&T's corporate offerings with BT's Concert product line to offer corporations frame relay, private line and value-added IP network services.
A global sales and service business that will tailor network services to companies in specific industry sectors, including financial, petroleum and IT. The group will draw 250 customers from AT&T's and BT's existing client base of multinational companies, the partners said.
A carrier service business that will supply wholesale international pipelines to other carriers and manage all the international connections.

Analysts generally applauded the new venture.

"Now it's a horse race," said Jeffrey Kagan, president of Atlanta-based Kagan Telecom Associates. The alliance "will create another powerful player in the global marketplace which will pit the world's top telephone companies against each other in a competitive free-for-all," he said.

Kagan added that challenges remain. AT&T still needs to develop a strategy for the U.S. local market and both partners need to strengthen their Internet businesses, he said. In addition, AT&T's new Chairman and CEO Michael Armstrong is bringing rapid changes to the company that are "pushing many at AT&T outside their comfort zone," Kagan said.

Since Armstrong took over last fall, AT&T has bought TCI, cable TV company and TCG, a competitive local exchange carrier. It has also entered technology agreements with a slew of hardware vendors.

AT&T says its WorldPartners alliance will not be extended beyond year-end 1999. Along with many international carriers, the WorldPartners alliance includes Kokusai Denshin Denwa Co. of Japan and Singapore Telecommunications.

Additionally, AT&T says it will exit its alliance with Unisource NV, a consortium, that includes KPN of the Netherlands, Swisscom and Telia of Sweden.

The exit of AT&T from these two consortia places greater pressure on the company's remaining alliances to find strong partners in Japan, according to Toshiaki Iba, an analyst at ING Barings Securities.

Much of the new AT&T/BT venture's focus will likely be on cracking the newly regulated Japan market - the world's second largest telecom market - where BT has been wooing local lead carrier Nippon Telegraph & Telephone Corp., analysts in Tokyo said.

From the BT side, the deal with AT&T represents a rebound from its failure to acquire MCI Communications Corp.

BT has pursued other global alliances in the past, with mixed success. Its original global alliance with MCI, Concert, formed in 1994, now is shifting as a result of MCI's purchase by WorldCom. (AT&T will become a distributor of Concert services, and MCI will divest as a result of its purchase by WorldCom.) The second deal was the proposed buyout of MCI by BT.

Analysts are predicting the alliance will give BT a much-needed entry into the U.S. market and the ability to expand more rapidly in regions such as Europe and Asia. Perhaps more significantly, the deal might reduce the competition both companies face, at least in the international market. Analysts are optimistic about the deal despite the failure of other multinational global alliances - Global One and Unisource, have not been financial successes.

"BT needs a U.S. partner. They are not going to survive globally without one," said Emma Whitten, research director at CIT Research, a telecom research and strategy firm in London.

Now, BT can move into the U.S. market without having to face the largest carrier in the market, as a competitor. "We are not going to be competing head-on with AT&T in the U.S.," said Simon Gordon, a spokesman for BT.

The partnership with AT&T will benefit BT significantly, Whitten said. "AT&T has a fantastic reputation with customers all over the world, not just American customers. They have a very, very good record with network reliability and being good to deal with."

Analysts and investors are pointing to one major difference between MCI and AT&T that also benefits BT. MCI would have had to invest heavily to offer local phone connections. With its purchase of TCI and TCG, AT&T will have the local loop covered.

Also, BT is wiser following the collapse of the MCI deal, Whitten said. "BT's experience with Concert and collaboration with MCI will stand them in good stead," Whitten said. BT learned a lot about gaining and retaining customers and marketing from MCI, she said.

The venture is expected to contribute around $1 billion to BT [and AT&T] in the first year and grow 15% to 20% each year. "Pulling together the resources and assets is going to reduce transmission costs and overhead, and that will result in cheaper prices for customers," Gordon said.

BT gains the goodwill that comes with the well established AT&T name, Whitten said. "AT&T's reputation will help them [BT] to sign up the very large multinational contracts, but it won't help them with local markets," Whitten said.

Even this deal, with its size and scope, probably is not the last word we will hear from BT about global alliances. "We've been in talks with lots of people," said BT's Gordon.