(en)Global Telecommunications Pact

`piÓ (dmn@panix.com)
Tue, 18 Feb 1997 11:53:24 -0800 (PST)

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COMMUNICATIONS PACT TO FAVOR GROWING GIANTS The world's telephone companies have been in a lively mating dance for several years, pairing off and swapping partners at a brisk pace. But the industry tango is about to become a tarantella. Negotiators at the World Trade Organization in Geneva signed a landmark agreement over the weekend that should throw open vast new telephone markets to competition and foreign investment. The pact promises to uncork a flood of deals, as telephone companies... scramble to find partners and build alliances across borders. More than 60 countries signed the pact, which is intended to topple state monopolies and open the $600 billion global industry to freewheeling competition. Victory, the experts say, will not go to lone entrepreneurs but to those companies with the most powerful friends.. "People aren't going to want to be left behind," said Gerald H. Taylor, the chief executive of the MCI Communications Corporation, which is in the process of completing a $22 billion merger with British Telecommunications. "You're going to see a lot more movement into partnerships and joint ventures." Mr. Taylor believes that the merged MCI and British Telecommunications will be a blueprint for the kind of phone company able to capitalize on these newly liberalized markets. The combined company will have 43 million customers in 72 countries, as well as ventures with carriers in another 15 countries. More important, the merged company will own a long distance network and switching operations on both sides of the Atlantic, enabling it to offer big corporate clients end-to-end service over its own wires. That is the Holy Grail for any telephone company with global ambitions. "To own and control customers, you've got to own the assets," said Tom L. Elliott, the managing partner of the communications practice at Arthur Andersen. "You want to be in a position to serve a customer under your brand name wherever they are on the globe." The World Trade Organization agreement makes such a global strategy possible by raising the level of investment that foreign carriers can have in local companies. In the case of the U.S., a foreign carrier could own 100% of an American telephone company as long as the native country of that carrier offered reciprocal access to its industry. Other countries, like Canada and Japan, have left some limits in place, though Canada and Japan relaxed their policies under pressure from the U.S. For big carriers like AT&T, MCI, and BT, foreign ownership matters a lot more than whether overseas calls will be cheaper for tourists or exchange students. That is because the carriers are focused on the top 5,000 coporate customers - companies like IBM, Merrill Lynch, and Sony, which generate a cumulative $90 billion a year in telecommunications revenue... To offer such customers end-to-end service, the phone companies are stitching together a bewildering array of partnerships. In addition to the BT-MCI merger, the Sprint Corporation has an alliance with France Telecom and Deutsche Telekom, called Global One. The French and German companies each own 10% of Sprint. AT&T has a European alliance, Unisource, which is in turn part of a global federation, World Partners. And the industry is rife with rumors of more deals. Cable & Wireless, another British carrier, recently broke off an alliance with 2 German utility companies, Veba AG and RWE AG. That leaves the company in search of a new partner, and it is said to be in talks with both Sprint and AT&T. With its 58% stake in Hong Kong Telecom, Cable and Wireless would give either company a valuable beachhead in Asia. Europe has become a virtual bazaar for telephone deals, because the European Union has decreed that all of its domestic markets will be opened to competition by Jan. 1, 1998... In Germany, no fewer that 3 alliances are taking on the state-controlled monopoly, Deutsche Telekom. In addition to Veba and RWE, AT&T has an alliance with Mannesmann AG, an industrial conglomerate that plans to lay wire along railroad tracks... Meanwhile, British Telecom is in a partnership with yet another industrial conglomerate, Viag AG. ...In France, BT is forming an alliance with Compagnie Generale des Eaux, France's national water company, to compete with France Telecom. The plan is to build second phone network, using Generale des Eaux's sprawling rights of way. BT may be the industry's most prolific deal maker, with ties in Spain, Norway, Denmark, Sweden, Italy, Switzerland, and the Netherlands... For all the horse-trading in Europe, the WTO agreement could have greater impact in Latin America and Asia. That is because markets there have been even more tightly shuttered, and because many of the governments in those regions are hungry for foreign investment. In Mexico, for example, MCI has a joint venture with a Mexican bank, Grupo Financiero Banamex-Accivel, to build the country's first competitive telephone company. MCI now owns 45% of the venture, which is called Avantel. But under the world trade pact, Mexico will permit foreign carriers to acquire as much as 49% of a local company... MCI (is) open to raising its stake in Avantel...

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