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Friday, October 15, 1999 Published at 13:07 GMT 14:07 UK


Business: The Economy

From alliances to mergers

State telecoms companies face pressure to merge

The European telecoms industry is eagerly looking for partners to counter the threat from the emerging US telecoms giants.

The telecoms revolution
But many believe that ultimately it will be mergers rather than alliances dominate the future of the telecoms industry.

Much of the talk at the Telecom 99 conference in Geneva has involved casting around for new alliances as the industry continues to reshape itself, driven by technological change and deregulation of cosy national markets.

Just before the conference opened, the industry was rocked by the news of the largest-ever telecoms merger, as WorldComMCI merged with Sprint to form a real rival to US long-distance operator AT&T.

Looking for a partner

Now companies like Telecom Italia, Belgacom, and Bell Atlantic are looking for partners.


[ image: Looking for a merger partner]
Looking for a merger partner
Some are more open than others: "I'm looking for alliances, especially on the mobile side," said Telecom Italia chief Roberto Colaninno.

Meanwhile Bell Atlantic, which is merging with GTE and has a mobile phone alliance in the US with Vodafone, said it was in the market for European partners.

And the Belgian telecoms company Belgacom - allied to US giant SBC - said it wanted to create a pan-European mobile phone alliance.

"You can dream of a European footprint, for example, in mobile and data ... there are some great avenues to explore," chief executive John Goossens said.

Alliances falter

But while some companies look for new partners, existing alliances have increasingly come under strain.

The Global One partnership to provide data services to multinational businesses, a partnership of Sprint with France Telecom and Deustche Telekom, is breaking up with recriminations among the partners.

Each is seeking to buy the other out after Sprint announced it was to merge with its rival.

And the rival Unisource alliance, between AT&T and the Dutch, Swiss and Swedish telecoms companies, is in the throes of dissolution, as AT&T has chosen to link up with BT instead.

But experts believe that the new alliance, called Concert, will ultimately have to move to a full merger.

"They won't retain their current relationship .. Nobody in their right mind would prefer an alliance over full ownership - if they had both options open," one analyst said.

Nevertheless AT&T Chairman Michael Armstrong believes that they can make their alliance work.

"Our parents have a common vision and I believe that is the foundation of a successful business model," he told a press conference.

National rivalries

Meanwhile, the difficulties of mergers within Europe has also been highlighted.

Only two companies, Sweden's Telia and Norway's Telenor, have successfully merged in recent years.

The battle over Telecom Italia, where the government clearly preferred a takeover by smaller Italian rival Olivetti to a merger with the foreign-owned Deutsche Telekom, was just one example of the difficulty.

France Telecom has managed to buy a stake in a cable firm in the UK, Europe's most deregulated telecoms market, but companies like Cable and Wireless have virtually given up the fight to compete with BT on its home turf.

It may well be that, as the barriers to competition are lowered, it is the US companies who prove the more potent merger partners for their Continental rivals.

Having consolidated their position at home, they are now waiting for the next merger wave to begin.



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