France Telecom sues Deutsche Telekom

Sprint's two foreign partners at war over DT's outside merger activity.

By David Rohde
Network World Fusion, 05/19/99

Sprint's two principal foreign partners are heading to international court. This case could be a big blow to Sprint's global alliance.

France Telecom (FT) is suing Germany's Deutsche Telekom (DT) in the International Court of Arbitration of the International Chamber of Commerce. FT claims that DT violated their partnership agreement when DT merged with another European carrier, Telecom Italia.

FT says it is seeking damages in an amount to be determined, but added that it estimates the damages may run to several billion Euros. The Euro - a new common currency among 11 countries such as France and Germany - is currently worth about $1.06.

Sprint, FT and DT own Global One, a joint venture that provides multinational frame relay, ATM, IP and voice service in dozens of countries. Technically, FT is suing DT not under the Global One partnership deal but under a separate contract. Officials from these companies - including Sprint CEO William Esrey - have sought to distinguish between the squabbling of the Global One owners and Global One, which they say is a viable, ongoing concern.

But analysts aren't sure Global One can escape unharmed. "This affects Global One big time," says Berge Ayvazian, senior vice president of The Yankee Group and an international telecom specialist. "One or another of the European investors is going to exit [the venture]."

Originally, DT's embrace of Telecom Italia was seen as a possible prelude to a DT attempt to sell its share in Global One. Now FT's lawsuit could be an indication that it wants to get out first, Ayvazian says. "They could exit stage left and leave DT holding the bag." Global One has been losing money, and although it could survive losing one of its original owners, he says, "that would be a very difficult moment for Global One as a service provider."

Users are likely to respond to the Global One questions by shortening their contracts just as they did when faced with recent changes at Concert, a rival international service provider. Many users are now on month-to-month arrangements instead of long-term contracts with these kinds of joint-venture companies, Ayvazian says. When it comes to determining discounts, international carriers now consider the amount of traffic offered by a multinational user more important than the term of the contract they're willing to sign.

Several weeks ago, FT expressed concern about DT's merger with Telecom Italia in a cryptic statement that left some room for interpretation. This time FT made no effort to conceal how it feels. FT called its legal action against DT a "major suit" and, like a spurned mate, says DT's deal with Telecom Italia "significantly alters the trust" between DT and FT.