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When AT&T (T
) and British Telecommunications (BTY
) teamed up in 1998 to form Concert, they predicted that their 50-50 joint venture would be that rarity of rarities -- a synergetic powerhouse that actually worked. The idea was to provide a single service that big corporations could use all over the world, reducing the hassle of dealing with numerous local carriers. AT&T had just paid $5 billion to buy an international network from IBM. Concert would use that to provide long-distance service from the border of one country to another, and it would partner with local carriers in 60 countries to complete the connections.
Sure, differences over strategic direction had marred a similar effort, the Global One venture of France Telecom, Deutsche Telekom, and Sprint. And yes, an earlier version of Concert, which included BT and MCI, fell apart after MCI sold itself to WorldCom. But the new Concert was going to be different.
Well, maybe not. After a year of disappointing profits amid a global telecom market crash, AT&T is on the verge of assuming control of the entire venture, as well as Ignite, BT's local networks on the Continent, BusinessWeek has learned. No agreement is assured, but sources inside and outside the companies say serious negotiations are under way and that an announcement could be made as early as next month. A deal was almost struck last year, but it was scuttled by disagreements over price and management. Now, BT is under so much pressure from its shareholders, that it probably has no choice.
"CERTAINLY LOOKING." In recent weeks, AT&T CEO C. Michael Armstrong has met with BT Chairman Sir Iain Vallance and BT CEO Sir Peter Bonfield. The talks also have included AT&T President David Dorman, a former Concert CEO who is expected to oversee the unit. AT&T wants to simplify the cumbersome structure of the sales force and streamline corporate governance.
About 400 of Concert's nearly 7,000 jobs could be eliminated, creating a modest cost savings. "We have no comment on the speculation. But we are certainly talking to BT about strengthening the venture," says AT&T spokeswoman Adele Ambrose. Concert spokeswoman Dianne Bernez agrees that the partners are "certainly looking for ways to improve the model." BT officials weren't immediately available for comment.
The key is Ignite, BT's high-speed Internet service. The service is based on a series of voluntary agreements among small carriers in Europe. AT&T, through Concert, would acquire Ignite as well as larger stakes in Ignite's local affiliates, people familiar with the matter say. That would help AT&T create a larger, end-to-end network. AT&T would also create a single technological platform for the global operation, making the network easier to use.
HOW PROFITABLE? "AT&T would have three times the European network coverage that WorldCom has," says Mark Bruneau, CEO of Adventis, a telecom consulting company in Boston. Ignite has 50,000 kilometers of fiber in 100 cities in Europe, vs. WorldCom's 16,000 kilometers. "This is Concert on steroids. And this is Concert with two heads instead of one," Bruneau says.
The deal would help BT raise cash to pay down its burdensome debt. AT&T is expected to pay BT a lump sum in cash and stock, as well as some percentage of future revenues, people familiar with the talks say. The value of the transaction could not be immediately determined. Concert is a privately held company and does not report its financial results. Its revenues are in the $7 billion range, but the profit figures haven't been released. Armstrong told AT&T analysts earlier this year that Concert profits were below expectations, but he wasn't specific.
If all works this time, AT&T could emerge from the deal as a major player in global communications for the first time ever. It has long been overshadowed by WorldCom, which has been building local networks throughout Europe for years. But now AT&T has a chance to buy a collection of stakes in small carriers at a discount, thanks to the global telecom downturn that has depressed stock prices in the U.S. and Europe.
AT&T AS UPSTART. It will take strong management to make the deal work. The European telecom business is still a collection of national carriers. No one has been able to successfully challenge the monoliths such as Deutsche Telekom, France Telecom, and Telefonica. And no carrier has been able to truly master the daily details of running a global telecom company. The billing, marketing, and regulatory challenges will be huge. AT&T will be entering each country as a small upstart with a tiny market share.
But Dorman might be up to the task. An industry star, he ran Pacific Telesis at the young age of 39. And during a stint at Sprint, he had a hand in launching the troubled Global One joint venture, where he saw all the weaknesses of such a structure. With Concert in its final movement, it's time for Dorman to apply what he has learned. By Steve Rosenbush in New York