NN's position with SBC, DT, FT, and BT will serve them well in any cross-Atlantic acquisition/merger:
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October 25, 1999
Europe Is Next Frontier
For U.S. Telecom Deals
By STEPHANIE N. MEHTA and ANITA RAGHAVAN
Staff Reporters of THE WALL STREET JOURNAL
The Old World is quickly becoming the telecommunications industry's new frontier.
With the consolidations in the U.S. reaching a peak -- capped by MCI WorldCom Inc.'s $115 billion bid for rival Sprint Corp. -- big American companies are likely to turn their attentions across the Atlantic to become global providers of telephone and Internet services. But instead of forging joint ventures or making small investments in European operators as they had in the past, with mixed results, U.S. telephone companies increasingly are likely to make big acquisitions in Europe.
"We're aware of past experiences" with global alliances, said Edward E. Whitacre Jr., chairman of SBC Communications Inc. The Texas-based Bell telephone company earlier this month completed its $75 billion purchase of neighbor Ameritech, giving SBC a massive asset base in the states. Many analysts believe the acquisitive Mr. Whitacre will make his next buy in Europe. "We're looking at all our options," Mr. Whitacre said.
One ideal target for Americans' global aspirations is Mannesmann AG, the German operator that last week agreed to buy British cellular operator Orange PLC for nearly $33 billion in cash and stock. The company, launched initially as a competitor to German incumbent Deutsche Telekom AG, now has footholds in Italy and the United Kingdom and at home.
Mannesmann, especially with the addition of Orange, would be attractive to U.S. carriers because it would provide an instant pan-European presence. Big telephone companies want to be able to provide their largest corporate customers with "one-stop" shopping for clients' global telecommunications needs.
"Germany, France, the U.K. and Italy are the largest telecommunications markets in Europe by some distance and are the cornerstone of any operator's global strategy," said Steve Jobber of Paribas SA. "Controlling these assets is essential and invaluable."
American operators may choose to pick off low-profile properties, too. Europe is home to dozens of lesser-known telecommunications operators with operations throughout the continent, such as Equant NV, a publicly traded Dutch phone company that primarily moves Internet traffic, and publicly traded Global Telesystems Group Inc., an operator of European phone networks in Washington.
U.S. telecommunications executives are pursuing a variety of strategies for penetrating Europe. AT&T Corp., the New York-based long-distance company, formed a multibillion-dollar joint venture with British Telecommunications PLC to serve international clients. MCI WorldCom of Clinton, Miss., meanwhile, is building its own networks linking cities in Europe.
But telecommunications joint ventures historically haven't fared well, and construction projects take a long time to complete. Global One, an alliance between Sprint, Deutsche Telekom and France Telecom to serve business customers worldwide, has racked up big losses on flat revenues.
This is one of the reasons U.S. carriers lately have been determined to own their networks rather than share or lease them from competitors as part of an effort to reduce costs of transporting voice and data traffic.
That leaves Americans with little choice but to make acquisitions in Europe. "I think we are going to see ... heated consolidation in Europe as North American players try to get European assets and as European players try to get more ubiquitous in Europe," said Jack Grubman, telecommunications analyst with Salomon Smith Barney.
Of course, cross-border interest works both ways: Deutsche Telekom, the German national operator, is looking for an acquisition in the U.S., particularly in the wake of MCI WorldCom's planned purchase of Sprint, say people familiar with the situation.
Some U.S. carriers, however, may need to take care of some business at home before they start making purchases overseas. Executives of Bell Atlantic Corp. believe their international efforts would be greatly aided by the ability to offer their customers long-distance calling services. The Bells are prohibited from offering long distance until they have proven their home territories in the U.S. are open to competitors.
Bell Atlantic and GTE Corp. also must close their $65 billion merger. "We have to get our merger done before we start running after opportunities internationally, but our eyes and ears are wide open," said James Attwood, GTE's executive vice president of strategic development and planning, at a recent telecommunications trade show in Geneva. "Clearly we will have to have a presence in Europe, but at the right time."
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Looking ahead to this week, ATT reports tomorrow and LU on Tuesday. Both will give hints of where growth is strongest.
Pat |
