The notion of a global phone company is fast becoming a reality as deregulation spreads, writes Mark Tran
THE race to become the first global phone company has taken a dramatic twist with British Telecom’s (BT) planned acquisition of MCI, the United States’s second-biggest long-distance company.
Now, only AT&T and the BT-MCI alliance have the clout to harbour global pretensions. Both are positioned to compete around the world because of their financial strength, global reach and the flexibility that comes from operating in a deregulated environment.
AT&T, the industry leader with estimated revenues of $45-billion, has long regarded BT and MCI as the main threat in a $500- billion market that encompasses not just long-distance but also local calls, wireless communications, data transmission, video and Internet access. The ultimate goal is to become the world’s dominant phone company, serving households and businesses in every continent.
While the notion of a global phone company seems incongruous in an industry still rife with state-owned monopolies, deregulation is spreading fast.
Vice-President Al Gore has already mooted scrapping the restrictions that limit foreign ownership of US phone companies to 20%, provided other countries open their markets, too.
AT&T girded itself in 1996 for this new world by breaking itself into three. The manufacturing arm has been spun off as Lucent, and NCR, the computer arm, will be divested early next year. The rationale is that the break-up will allow AT&T to focus on the telecommunications business.
In another move to prepare AT&T for the new era of unfettered competition, Robert Allen, the embattled AT&T chairman, recently announced the appointment of John Walter, an industry outsider, as president and heir apparent.
The move was an implicit acknowledgement that Allen, who made the ill-fated decision to acquire NCR, was not up to making AT&T an agile enough competitor in the new environment.
Changes in the US have come thick and fast. The regional phone companies have not been idle and have also been consolidating. In a particularly unsettling alliance for the long-distance companies, Nynex and Bell Atlantic announced in April plans to form, in a $23-billion deal, the second-largest phone company in the US.
That particular combination will hold sway in a region covering 13 eastern states and 26-million local customers, and containing about 30% of the US’s wealth. About $30- billion of US long-distance calls either start or end in the region, as do a further $4-billion to $6-billion in international calls – a third of total overseas calls from the US.
Both AT&T and MCI betrayed their nervousness by calling on the Department of Justice to investigate the merger.
Meanwhile, the long-distance companies face another Baby Bell alliance in the south and west, with the $16,7-billion merger of Pacific Telesis and SBC Communications.
In the competition for long-distance business, MCI had insisted that its marketing skill and background would allow it to hold its own. Various studies indicate, however, that the local phone companies could grab as much as 10 to 15% of the long-distance market in their regions.
By subsuming itself into BT, MCI is acknowledging that its own skills and resources may be insufficient to confront a potentially more formidable AT&T and bigger Baby Bells with massive amounts of cash, not to mention the threat from cable.
As cable TV systems gain voice-calling capabilities, they can provide the links to millions of homes. Sprint, America’s third- largest cable company, is putting its heaviest bets on cable, while Time Warner, the entertainment conglomerate, is offering local phone services in US cities.
Offering one-stop shopping is a great idea, but it is difficult to pull off. AT&T’s attempt to bundle services got off to a shaky start because of a delay in setting up a computer system to bill customers for a panoply of services.
MCI faces the added challenge of working with a company based outside the US. But at least BT and MCI are familiar with each other, having co-operated since 1994 when BT acquired a 20% stake in MCI for $4-billion.
Bert Roberts, chairman of MCI, has cast far and wide for partners – from BT to News Corp and Microsoft. In allying himself with BT, he has ensured that, as the stakes get higher, MCI has access to BT’s deep pockets.