Merger of British, US Telecom Giants Could Create Global Rival to AT&T
Britain's most successful privatized company is reaching out across the Atlantic to create a telecommunications giant that would vie with AT&T, Sprint, and others for such growing markets as Asia, the Internet, and satellite communications.
Terms of the $22 billion deal between British Telecommunications PLC and MCI Communications Corp., the No. 2 long-distance carrier in the United States, were announced yesterday at news conferences in London and New York.
"This merger creates the premier telecommunications company of the new millennium," says Bert Roberts, chairman and chief executive of MCI.
The takeover bid is the largest in British corporate history. The way was cleared by moves in both the US and Britain to open markets to foreign firms.
"The reciprocal element in this deal will stimulate competitiveness worldwide, and in the long run this will benefit consumers and customers," says British phone-industry analyst James Dodd.
Overseas phone companies were not permitted until a year ago to own more than 25 percent of a US carrier. That limit can now be breached if the overseas company can show that its home market is open to competition from the US.
"This transaction won't affect phone bills immediately. They have been coming down progressively in recent years, and we have just agreed with government on price decreases for the next four years," says Sir Peter Bonfield, chief executive of British Telecom (BT).
The merger does not come out of the blue. BT bought a 20 percent stake in MCI in 1993. Since then, in an alliance known as Concert, the two firms are reported to have won contracts worth more than $2 billion from 3,000 customers, including Microsoft and Bank of America. The companies plan to adopt the Concert name after the merger.
Consultant Jeffrey Kagan, of Kagan Telecom, says the merger - if approved in London, Brussels, and Washington - will "create a serious challenge to AT&T," a giant with numerous alliances around the world. Yesterday Mr. Kagan called the BT-MCI merger "a virtually done deal," with approval likely. He surmised that AT&T chief executive Robert Allen had been "having a sleepless weekend."
Sprint, the No. 3 US long-distance firm, is also sure to be concerned. It has partnered with Deutsche Telekom and France Telecom in its own bid for global clout.
If the cash-and-stock merger goes through, the top global telecom groups, in stock-market value, will be Japan's NTT, $110 billion; BT-MCI, about $64 billion; AT&T, $56 billion.
In annual sales, the line-up would be NTT, $81 billion; AT&T, $49 billion; Deutsche Telekom, $46 billion; BT-MCI, $38 billion.
The merger would bring BT together with media magnate Rupert Murdoch for the first time. MCI has a 13.5 percent nonvoting stake in Mr. Murdoch's News Corp. A BT-MCI merger may allow BT to link up with Murdoch in digital satellite television - a move British regulators have tried to prevent. MCI and News Corp. are currently developing a digital satellite TV system in the US, but the system is a late entrant into that business.
The merger may aim not only at growing markets such as satellite TV and Internet data services for businesses, but also at burgeoning phone markets in developing nations.
London-based analysts note that since 1993, BT has spearheaded acquisitions in Scandinavia, Germany, Italy, and the Netherlands. MCI has been similarly active in the Americas. But neither company has had a major presence in Asia. In May, BT failed in a bid to merge with Hong Kong-based Cable and Wireless, which has a large Pacific Rim presence. It is unclear how BT and MCI will tackle Asian markets.
One BT official expresses confidence that the merger will survive scrutiny by the US Federal Communications Commission (FCC). London's Sunday Times asserted that "the British market is more open to Americans wanting to enter the UK than the US market is to the British."
If the deal passes the FCC, Britain's Monopolies and Mergers Commission, and the European Commission in Brussels, the resulting company will be a telecom colossus, employing 183,000 people. BT shareholders would own about 66 percent of Concert, MCI shareholders 34 percent.
BT's spectacular growth in the dozen years since it was privatized is seen by some as a vindication of former Prime Minister Margaret Thatcher's faith in taking state-run companies private. Before 1984, BT was constantly under attack by customers for poor service and high prices. Spurred on by the Thatcher government's decision to allow other companies to enter the domestic market, BT ordered massive staff cuts and boosted investment in new technology.
The MCI merger is the latest in a wave of megadeals following recent deregulation of the US phone industry. But most of the other linkups - including Bell Atlantic-Nynex, SBC-Pacific Telesis, and WorldCom-MFS - have involved only US-based companies.