One more before I sign off:
From tomorrow's Financial Times:
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WEDNESDAY JULY 29 1998ÿÿTelecomsÿ
ACQUISITIONS: Technology mergers 'at record level'
By Louise Kehoe in San Francisco
A "massive push" to create high bandwidth networks capable of carrying voice, video and data is fuelling a surge in merger and acquisition activity in the high technology sector, according to a new study.
Led by telecommunications mega-deals, exemplified by the combination of Bell Atlantic and GTE, as well as by numerous deals in the communications equipment industry, such as Nortel's planned acquisition of Bay Networks, M&A activity in the technology sector has reached a record level.
The total value of deals in the first half of 1998 jumped to $292bn, an increase of 148 per cent over the first half of last year, according to a new report from Broadview Associates, the investment banking group.
Mergers and acquisitions, rather than initial public offerings, have become the preferred route to capital for privately-held high technology companies, with M&A deals outnumbering IPOs by 12 to one.
In North America, M&A activity reached a "furious pace", said Paul Deninger, Broadview chairman and chief executive, with 1,600 deals completed, up 17 per cent over the first half of 1997. The total value of these deals jumped nearly 100 per cent to $239bn.
At the same time, IPO activity is dropping, with the number of high-tech companies going public in the first half down 18 per cent from a year ago. "There is no question that the IPO market has cooled dramatically since the red-hot peak of 1996," said Mr Deninger.
With the exception of a few of the biggest technology companies and some internet companies, valuations are less attractive in public offerings than in private acquisitions, he said. "The majority of IPOs are trading below their offering price within two years."
Total figures for technology M&A activity were inflated by a small number of very large deals in the telecoms sector, Broadview acknowledged.
However, even excluding the telecoms deals, the upward trend was still evident, with the value of IT and media deals up 35 per cent worldwide and 18 per cent in North America.
In the software industry, acquisitions rose 57 per cent in North America during the first half. Similarly, in the hardware sector, where Compaq's acquisition of Digital Equipment was one of the largest deals, there is a trend toward concentration of market power.
Much of the focus of activity in the telecoms sector in the first half was on local access, highlighted by deals such as AT&T's proposed acquisitions of TCI and Teleport. With high bandwidth long-distance trunk networks now in place, telephone companies and others are moving to stake out their positions in local access services, said Broadview, causing rapid consolidation in the sect>>>>
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TUESDAY JULY 28 1998ÿÿTelecomsÿ
AT&T MERGER: BT seeks 'the real thing'
After several false starts, BT has finally found a global partner in AT&T. As Alan Cane explains, technology lies at the heart of this venture
Only a few years ago, it would have been as likely as Coca-Cola and Pepsi Cola co-operating to market a global drink.
But the agreement between AT&T, the largest US long-distance carrier, and British Telecommunications, the UK's principal operator is an inevitable consequence of the storms buffeting the world of telecoms.
The alliance, which will have initial revenues of $10bn, is also likely to prove a further nail in the coffin of the wretched "accounting rate system" that keeps international call prices inexcusably high.
Announcing the AT&T/BT venture in London, John Zeglis, AT&T's head of operations, said the telecoms world would never be the same again. He was right - but a few years behind the times.
In fact, the telecoms world has not been the same since the first optical fibre cable was laid and ordinary people started to use personal computers to access the internet, previously a black art confined to scientists and engineers.
Along with technology, the winds of privatisation and liberalisation that have swept the globe have shaken the industry with a series of mergers and acquisitions. In the US, SBC and Pacific Telesis and Bell Atlantic and Nynex Communications led the spate of mergers of "Baby Bells" (regional Bell operating companies). There is speculation that Bell Atlantic will complete the process by annexing another local operating company, GTE, later this week.
Technology is only one part of the story. But it is a crucial part. To put advances into perspective: a single pair of optical fibres, each the thickness of a human hair, can carry North America's entire long distance communications traffic. Gemini, a trans-atlantic undersea cable completed by Cable and Wireless of the UK and WorldCom of the US this year, has more capacity than all existing transatlantic cables combined. Today's network "backbone" - or principal fibre-optic highway - has 10 times the capacity of networks built only a few years ago. Technologies have been developed that use different colours of light to transmit separate information streams, allowing the same cable to carry 16 or 32 times as much traffic as before.
Networks built in these technologies require less capital and have lower operating costs.
Todd Hixon of the Boston Consulting Group says that, as a result, Qwest and WorldCom, two of the newer US operators, have built networks with a capacity equal to that of AT&T, MCI and Sprint - the first, second and third-largest long-distance US operator respectively - for about one-tenth the aggregate investment.
The advantage these technologies give the new, comparatively inexperienced, operators cannot be overemphasised. They are able to offer services of the same or better quality than established operators at significantly lower prices.
The young turks of the telecoms business - WorldCom, Colt Communications, RSL Communications, Esprit and so on - are distinguished by high quality at low prices rather than bucket-shop quality at bucket-shop prices. As Mr Hixon points out: "In 1996, the cost of handling a one-minute call was lower on WorldCom's low-cost backbone network than it was on AT&T's, despite AT&T's tenfold advantage [in terms of size]."
The question was: how could the old guard of former monopolies respond? A big part of the rationale behind the AT&T/BT joint venture is an attempt to cut costs and reap economies of scale. Both companies have to convert their traditional circuit switched networks to IP networks as quickly as possible [see below] and at the lowest cost. The "pipes" of a modern network must be filled to capacity if the owner is to be the lowest-cost producer in a competitive arena.
In one sense, this data wave overwhelms the industrial logic behind the spate of "global alliances" that characterised the industry a few years ago. Alliances such as Concert (set up by BT and its soon-to-be former partner MCI), Global One (established by Deutsche Telekom, France Telecom and Sprint of the US) and WorldPartners (AT&T's loose consortium) linked up national incumbents with upstart competitors in order to expand abroad. The hope was to compete for the business of multinational companies, worth a total of $40bn now and expected to grow to $200bn in 10 years.
There was a problem. It proved difficult to ensure high quality of service over international boundaries given the need to strike deals with a multitude of overseas telecoms authorities. And customers became more demanding. They wanted a single reliable supplier - and were perfectly prepared to switch to the new pretenders if their modern networks and advanced services could deliver a seamless service. WorldCom, for example, boasts it can deliver the required quality all over Europe network because it owns the backbone outright. It can set prices independently of other operators.
In creating a joint venture to serve corporate customers round the world, AT&T and BT are turning away from alliances with upstarts and joining together to offer a seamless service of their own. As with WorldCom, their joint venture will own its network, end to end, and will be able to fill it with traffic from its parents. In addition, it will take a step towards its ambition of becoming a leading "carriers' carrier" by transmitting traffic from other operators.
Its opportunities for economies of scale are huge. If - and it is a big if - it can manage such a mammoth project, the alliance could set the standard against which other international carriers are measured. Its brand of cola could prove the flavour of the decade.
Lex>>>> |
