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Telephone Carriers Look Beyond Their Borders

Facing stiff competition, they seek alliances to create global networks

AFTER inventing the telephone, Alexander Graham Bell trekked around the world searching for venture capital. By the early 20th century, before antitrust challenges forced it to shed its international businesses, the company he founded had a factory in St. Petersburg, an office in Shanghai, and operations in Britain.

Like Bell, Randall Tobias, AT&T's No. 2 man, is roaming the globe in search of business. AT&T and other telephone carriers see the world telecommunications industry opening up as never before. To keep profits up, they need to look beyond their national borders.

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"They all recognize that competition is coming to their market," says Gene Eidenberg, executive vice president of MCI Communications Corporation. "It can't be stopped. What they're trying to do is link up with people who are already competitive. [And] they're trying to buy time to get ready for it."

If the industry needed any convincing, MCI and British Telecommunications PLC (BT) provided the exclamation point last week. BT will pay $4.3 billion for a 20 percent stake in MCI - the nation's second-largest long-distance carrier. The deal gives MCI needed cash and creates a joint venture that will provide seamless international service.

Such service is sending tremors through the still largely monopolized telecommunications industry. If a United States corporation can set up telephone service for its foreign offices through MCI-BT, then local carriers will suddenly face competition. "It will force them to lower their prices and improve their service," says Joanne Smith, vice president and telecommunications analyst with Nomura Research Institute America.

On May 25, AT&T announced "WorldSource" - an alliance with phone companies in Japan and Singapore. Australia's Telstra, Canada's Unitel, and Korea Telecom also plan to join the alliance.

Last September, MCI signed an agreement with Stentor - the Canadian long-distance company owned by the provincial telephone companies. The $150 million deal allowed Stentor to license MCI software.

Other players around the world have also begun to partner: France Telecom with Deutsche Telekom in Germany and BCE Inc. in Canada with Mercury Communications Ltd. in Britain.

"That is probably going to happen worldwide," says Stephanie Comfort, vice president and telecommunications analyst for Morgan Stanley & Company Inc. "There'll probably end up being four or five global networks or alliances that dominate."

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This globalization can be delayed - but probably not stopped, these analysts say. Telephone companies of the industrialized world have already saturated their home markets with phones. Unless they can come up with new services, revenue growth will be slow.

A pull for wider service is coming from big corporate customers. Already globalized, they want the convenience of dealing with a single phone company around the world - especially if that company can provide advanced services to make Tokyo as easy to reach as Tacoma. The competition should also bring down corporate rates.

The money is not just in service, it is in equipment too. In April, AT&T announced potentially its biggest equipment deal yet. The Hainan Posts and Telecommunications Bureau is spending some $12.4 million to install AT&T switching equipment. The deal is the first since the telecommunications giant and the Chinese government signed a memorandum of understanding to supply telecommunications equipment.

Telephone density - the number of lines per 100 population - is only about 1.67 in China. (In the US, it is about 50.) If the Chinese can move that density to just 2.67, it would mean more business than AT&T's current share of the US equipment market. China is ambitious: It aims to boost tele-density to about 20 by the end of the decade.

In 1983, foreign revenues made up only 8 percent of AT&T's business. Today, it accounts for about 25 percent. By the year 2000, AT&T plans to have half of its business coming from abroad. One-sixth of the company's employees already work abroad.

"We see growing our business outside the United States as the single most important growth imperative," Tobias says.

All these moves will make international telecommunications a complicated industry. Telephone companies in one country will be leasing lines from foreign competitors, heating up competition, even as they seek alliances to create global networks.

"In the international telecommunications market, the two concepts coexist: one is competition and the other is cooperation," says Takeo Miura, deputy director of the Washington office of Kokusai Denshin Denwa Company, Japan's largest international carrier. "One hand shakes hands with all other carriers. The other hand shakes hands very selectively."

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