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Monday, July 27, 1998 Published at 12:39 GMT 13:39 UK

Business: The Company File

Dialling up a partner

Global alliances and mergers are sweeping the industry

The deal between BT and AT&T to create a $10bn joint venture is only one part of a wave of mergers and alliances that are transforming the global telecommunications business. In this special report BBC Online News looks at the background to the merger.

It was the threat from their competitors that has driven both BT and AT&T to act.

The merger wave is strongest in the US, where deregulation and the break-up of the AT&T monopoly created a number of rival companies.

But the privatisation of European telephone companies - which is still underway - has also given further impetus for global alliances.

American nightmare

AT&T was once as dominant in the US market as BT is in the UK. But since the government forced the separation of its local operators into seven "Baby Bells", the company has been struggling to maintain its position.

While losing its local services, its long-distance business was being eroded by aggressive new operators like Sprint, MCI, and WorldCom.

WorldCom's take-over of MCI created a formidable competitor of equal market value.

The wave of mergers among the local Baby Bells themselves-of which there will soon only be four - has also threatened to create a rival - SBC/Ameritech - with greater market clout.

AT&T was rebuffed when it tried to buy a regional operator, while the fourth long distance operator, GTE is also considering a bid for a regional carrier.

Under new chief executive Michael Armstrong AT&T has moved aggressively to reposition itself.

It is acquiring leading US cable operator TCI for $48bn, giving it cable access to one-third of US households and bypassing local operators. It also acquired Teleport, giving local fibre-optic cable access to business customers.

Weak global alliances

But its attempt to build global alliances has been less successful, concentrating on second-tier players.

Its European alliance - Unisource - has been badly dented by the defection of Telefonnica of Spain and the failure to enlist Telecom Italia.

Its WorldPartners programme - which links Unisource with Japan's KDD and Singapore Telecom - has been beset by problems caused by lack of control of its service quality.

Its main rival, the Global One alliance, comprises leading European operators Deutsche Telekom and France Telecom with the US long distance carrier Sprint.

Third Time Lucky

BT's need for mergers has been even more evident in the past few years, as the company has suffered rebuffs in trying to move both East and West.

Although BT has maintained a dominant position in Britain, deregulation will ultimately limit its ability to expand much further at home. The opening of the main European telecoms market this year will expose it to fiercer competition from its Continental rivals.

BT has tried twice to merge with UK rival Cable and Wireless, which has a strong presence in the Far East. But its possible £33bn offer was scuppered by the problems of regulatory approval in the UK and Hong Kong.

BT then attempted to take over US long-distance operator MCI for $23bn, only to be trumped at the last minute by WorldCom. Its earlier joint venture with MCI, Concert, will form the basis of the AT&T deal.

More Mergers Likely

With the global telecoms market growing by 15-20% a year, and fresh capital flooding into the market with the privatisation of government owned companies, more alliances are likely.

Swiss Telecom became the latest company to announce its plans to float on the stock market.

Enthusiasm about the prospects for the industry has pushed share prices for European telecoms up 60%.

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