Telefonica says IDT deal a "small door" to U.S.
Reuters Story - August 13, 1999 08:18
By William Schomberg
MADRID, Aug 13 (Reuters) - Spain's Telefonica has opened "a small door"
to the United States via a venture with carrier IDT Corp. , but bigger
moves into the world's largest market lie ahead, a Telefonica official
said on Friday.
"This is a door that Telefonica is opening, but it's not the biggest and
it's not the last," said the source, who asked not to be named.
Telefonica, which has invested heavily in Latin America to become the
leading telecoms company in the Spanish-speaking world, said on Thursday
it had agreed to form a joint venture with IDT to focus on the
30-million-strong U.S. Hispanic market.
IDT, based in New Jersey, describes itself as a carrier of long-distance
and international calls which also provides Internet services and
web-based telephony.
It agreed to act as a partner in a major underwater cable project led by
Telefonica linking North and South America.
The Telefonica official said IDT was an "important emerging"
telecommunications company.
"But we don't want this to be interpreted as our big entry into the
United States. That is Telefonica's intention but this is just a small
door," the official said.
Investors saw little impact from the deal and Telefonica's share price
was trading down 1.5 percent at 1115 GMT at 14.20 euros after gaining
0.8 percent on Thursday.
Manuel Torres, an analyst at broker Ibersecurities, said he expected any
major move into the United States by Telefonica would be via an alliance
with a big player with a presence in Asia to complement Telefonica's
Latin American empire. Spanish newspapers said the Telefonica-IDT deal
was struck behind the back of MCI WorldCom , Telefonica's strategic
partner for markets including the U.S. Spanish-speaking sector.
Analysts say the 16-month-old partnership with MCI WorldCom has failed
to bear any real fruit and might be on the rocks.
But the Telefonica official said the Spanish company still considered
MCI WorldCom a partner and it had been invited to join the joint venture
with IDT.
"The agreement with MCI is not dead. They were aware of the negotiations
with IDT and they have been invited to join the project. We will see
what happens," the official said.
The official declined to give further details about what kind of role
MCI might play in the joint venture.
Analysts in Madrid said they were also interested in IDT's agreement to
acquire at least $100 million of capacity on the Telefonica-led SAm-1
underwater cable which is due to come into service in 2000, linking big
cities in Latin America and the Caribbean with the United States.
IDT has also agreed to take a 10 percent equity stake in a company that
will manage the cable project.
The SAm-1 plan will cost more than $1.5 billion and IDT's involvement
will help ease Telefonica's financing costs, analysts said
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