News: Analysis & Commentary: DEREGULATION
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Long-distance companies hunt for allies in the telecom wars
When such bitter rivals as AT&T and MCI Communications Corp. start talking alliance, it's clear that there's a whole new ball game in telecommunications.
Since Feb. 8, when President Clinton signed legislation deregulating the business, the major long-distance carriers have been moving to establish themselves in the local, cable-TV, and other markets from which they had been barred. The initial goal is to offer local calling as the linchpin to a raft of services, from wireless to satellite TV. MCI CEO Bert C. Roberts Jr. has already let slip that his company is holding preliminary talks with AT&T. Their aim: to share the cost of building local-calling networks. For its part, AT&T has signed some 20 deals with rivals of regional Bell companies to resell local service, while Sprint Corp. and its cable partners are building a nationwide wireless network to be used for local access.
Don't expect any megamergers soon, however. For now, the long-distance carriers will initiate low-risk partnerships rather than high-risk acquisitions, testing the waters in new markets before making major financial commitments. Look for AT&T, MCI, and Sprint to sign resale agreements with Bell companies rather than merge with them. "There are a lot of paths to the customer, and it's a little early to declare exactly which one is the right one," says Joseph P. Nacchio, executive vice-president of AT&T's consumer and small-business division. So AT&T, MCI, and Sprint are seeking partnerships with any company with a wire into homes--from cable-TV operators to electric utilities.
TRUSTBUSTER ALERT. Besides, mergers may not be looked on kindly in an industry where the Big Three still hold a lock on the long-distance market. "Anytime there is a merger in this business, it gives the Justice Dept. a chance to sink its teeth into you," says Scott Cleland, an analyst with Washington Research Group, a consultancy. And Justice would likely come down hard on any deal that smacks of reconstituting the Bell System after all it went through to break up AT&T 11 years ago.
For smaller long-distance carriers, though, mergers could well be in the offing. WorldCom Inc. and LCI International Inc., the fourth- and fifth-largest long-distance carriers, are the partners of choice for the Baby Bells, which want to avoid giving business to their biggest rivals. A Baby Bell could acquire WorldCom or LCI and immediately vault into a top spot in the industry. That's one way to hit a home run in this brand-new telecom game.BY CATHERINE ARNST IN NEW YORK, WITH BUREAU REPORTSReturn to top
--The nation's largest phone company is in preliminary talks with MCI to
jointly build several local-calling networks.
--AT&T has also signed 20 contracts to resell local capacity from
competitive-access providers such as MFS Communications.
--Apart from any deal with AT&T, MCI has already agreed to purchase and
resell cellular calling services from a number of providers, including AT&T.
MCI, which is 20% owned by British Telecommunications, recently bought a
cellular reseller, Nationwide Cellular Service.
--MCI would be a natural partner for a Baby Bell.
--Sprint has a joint venture with cable outfits TCI, Comcast, and Cox aimed
at bundling long-distance, local, and cable-TV services. The four also are
teaming up to sell wireless services under the Sprint brand name. Meanwhile,
Sprint, 20% owned by Deutsche Telekom and France Telecom, is spinning off its
--The nation's fourth-largest long-distance carrier has just signed deals to
resell its service to Ameritech and GTE. Since WorldCom can offer the same
nationwide coverage as the Big Three, more Bells are likely to flock to it--or
even buy it--rather than give their business to MCI, AT&T, or Sprint.
--LCI, the fifth-ranked company, has snagged the Bell AtlanticNynex cellular
partnership, which will resell its long-distance service.
--Like WorldCom, LCI is a natural merger partner for a Bell looking for a
national long-distance network.
DATA: BUSINESS WEEK, COMPANY REPORTS
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