This might explain the price movement in LWIN lately>
Shakeout Rattles T99
Carriers face wave of consolidation as markets are liberalized
John Blau
Talk to them while you can. Many telephone companies exhibiting here at Telecom 99 + Interactive
99 probably won't be around for the next show four years from now.
Consolidation in liberalized telecommunications markets, particularly in the United States and
Europe, is likely to see the number of big and small phone companies dwindle fast. Analysts expect
that nearly half of the incumbent operators in Europe--core members of the International
Telecommunication Union--will be either acquired or merged over the next few years. Many new
players will get absorbed by much larger international companies, as well.
"All but three former PTTs--British Telecom, Deutsche Telekom and France Telecom--are potential
acquisition candidates,"says John Matthews, principal consultant at Ovum Ltd. (London).
MCI WorldCom Inc.'s move last week to acquire Sprint Corp. for $129 billion has set the stage for a
feeding frenzy on both sides of the Atlantic, analysts say. Deutsche Telekom AG and France
Telecom plan to sell their 10 percent stakes in Sprint, which means both of them are on the prowl
for new U.S. partners.
"We need a global presence for our business customers,"says one Deutsche Telekom official. "The
U.S. is a very important market. It is a priority."The German carrier expects to announce an
investment in a U.S. carrier "soon,"he adds. He declined to say whether this would be a full-blown
acquisition or a minority stake.
Deutsche Telekom and Telefonica S.A. (Madrid) are rumored to be in separate talks with BellSouth
Corp., with a view toward investing in the regional operating carrier. BellSouth owns 10 percent of
Kloninklijke PTT Nederlands N.V. (KPN, The Hague, the Netherlands), which is also viewed as a
takeover target.
Sprint's departure also means that Deutsche Telekom and France Telecom are both angling to take
control of Global One (Reston, Va.), the international carrier owned by all three operators. "We need
to resolve the ownership issue fast to prevent Sprint from moving customers over to the new
company,"says the German official. "This is clearly not a good situation for us."
It's possible that Deutsche Telekom and France Telecom could end up competing with each other to
take over Global One. There's no love lost between the French and German carriers following
Deutsche Telekom's failed attempt to acquire Telecom Italia SpA (Rome) earlier this year.
While the big carriers size each other up, they're also looking at acquiring new carriers. "A lot of the
new entrants are financed on venture capital,"says Phil Barton, chairman of the European Virtual
Network Users Association (EVUA), which negotiates telecom deals with carriers on behalf of its
members, about 60 multinational corporations. "They're all for sale for the right price."
Speculation is rife, but some of the most frequently named acquisition targets among new carriers
include Global Crossing Ltd. (Hamilton, Bermuda), Energis Communications PLC (London), Equant
N.V. (Amsterdam) and Colt Telecom Group PLC (London). Teleglobe International Corp.
(Washington, D.C.), the Canadian international carrier, is also considered a takeover target.
Global TeleSystems Group Inc. (GTS, McLean, Virginia), which operates one of Europe's largest
cross-border transmission networks, could change ownership as early as this week, according to
one well-placed source. Over the past two years, GTS has expanded aggressively in Europe through
a string of acquisitions, the most recent of which is Esprit Telecom PLC (Reading, U.K.).
Another target that has surfaced on the radar screen of some carriers is United Pan-Europe
Communications N.V. (Amsterdam), which is stringing together a network of cable assets across
Europe.
Analysts expect U.S. companies to take advantage of the consolidation in the European telecom
sector. "Intra-European rivalries will probably block much consolidation among European operators,
opening the door for the Americans,"says Peter Golob, telecom analyst at Merrill Lynch & Co.
(London).
Don't expect AT&T Corp. and BT to talk mergers, though, when the two companies showcase their
new global joint venture at Telecom 99. At least not yet: The two heavyweights are investing $10
billion in a new 50-50 joint venture with a familiar name, Concert, that will provide global
telecommunications to multinationals, carriers and Internet service providers (ISPs). The venture,
which has gained clearance by the European Commission (EC), is still waiting for approval from the
Federal Communications Commission (FCC, Washington, D.C.).
David Dorman, chief executive officer of Concert, says the venture will combine most but not all of
the parent companies' transborder assets, including oceanic cables, the companies' global
networks and the non-U.S. portion of IBM Global Network (IGN, New York). Also rolled into the
venture will be the correspondent relationships of the parent companies. "There are enormous
opportunities to optimize the correspondent traffic into a single network,"says Dorman.
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