From Teledotcom - As the World Turns
John Blau
November 15, 1998, Issue: 313
Section: 1998 Annual Report
Building global telecom alliances can be a lot like Hollywood: plenty of flirting,
lots of affairs, quick marriages and even faster divorces. Ask Viesturs Vucins,
the talented European alliance builder who got booted from the Global One
alliance earlier this year after racking up millions of dollars in losses. Or talk to
Iain Vallance and Peter Bonfield, BT's global visionaries. What they expected
to be their biggest personal achievement-the acquisition of MCI
Communications Corp.-was undermined by former hotelier Bernie Ebbers,
now chairman of the merged MCI WorldCom Inc.
Two of the big three global alliances, BT-MCI's Concert and AT&T's
WorldPartners, bit the dust in 1998. The BT venture died (although BT has
hung on to the Concert name) when the British carrier failed to cement its
partnership with MCI. And AT&T, disillusioned with its loose,
nonexclusive/no-equity marketing arrangements overseas, pulled the plug on
its WorldPartners and AT&T-Unisource ventures to hop in bed with BT. The
U.S. service provider's linkup with the three-carrier Unisource alliance had
been established to focus on the European market, while WorldPartners,
whose founding members include AT&T and Unisource N.V. (Hoofddorp,
the Netherlands), had been set up to serve the rest of the world.
Only Global One (Reston, Va.) has so far managed to ride out the stormy
global alliance weather this year, with Deutsche Telekom AG, France
Telecom and Sprint Corp. still on board. But the venture is looking to stem its
losses by undergoing a major restructuring, and its three shareholders, which
have had problems agreeing on strategy, have also grown cool to the idea of
opening the door to an additional partner.
There have been casualties, like Unisource, Cable & Wireless PLC (C&W,
London) and Telecom Italia SpA (Rome). And it's unclear what will happen
to many of these sidelined players, particularly Unisource partners
Kloninklijke PTT Nederlands N.V. (KPN, The Hague, the Netherlands),
Telia AB (Stockholm, Sweden) and Swisscom (Bern, Switzerland), who have
seen their Unisource alliance all but crushed by desertion. Last year Spanish
ally Telefonica de Espana S.A. (Madrid) unexpectedly pulled out of
Unisource to join BT and MCI, which it viewed as the stronger alliance (it has
since aligned with MCI WorldCom). This year AT&T announced it would
abandon its linkup with the European alliance no later than 2000, to align with
BT. And Unisource's plans to bring Telecom Italia on board have gone
nowhere.
C&W, with its several attractive global assets, has fared no better. Ever since
retreating from its planned European alliance with German energy and telecom
conglomerate VEBA AG (Dusseldorf) last year, the service provider has been
in and out the door with BT and Telecom Italia. A linkup between the two
British companies is now viewed as highly unlikely for regulatory reasons. And
the proposed cooperation between C&W and Telecom Italia has remained
just that-a proposal. Words, not deeds. No concrete action has emerged
since the carriers announced their collaboration plans.
The catalyst for this year's round of musical chairs among global alliances is
Ebbers, who did what few in the industry thought was possible. The
newcomer snatched MCI right from under the nose of gentlemanly BT, an
old-school service provider that thought no one, certainly no small U.S.
startup, would dare challenge the acquisition plans of a self-proclaimed "global
player."
And if Ebbers had the money, he'd probably try to buy Telefonica, which is
now aligned with MCI WorldCom through some equity. That's a big
exception for the self-made telecom executive who boasts he's in the business
of buying, not aligning. His goal: end-to-end ownership of a rapidly expanding
global network. Under his leadership, WorldCom has acquired infrastructure
builder WilTel Managed Network Services (Houston), Internet company
UUNet Technologies Inc. (Fairfax, Va.) and, of course, long-distance
provider MCI. The next big acquisition could be a mobile venture, to provide
wireless connections to homes and small businesses, says MCI Worldcom
Vice Chairman John Sidgmore. Mobile service providers AirTouch
Communications Inc. (San Francisco) and Vodafone Group PLC (Newbury,
U.K.) are rumored targets.
The newly formed MCI WorldCom Inc. claims its local-to-global-to-local
approach best supports the demands of multinational customers seeking
seamless managed network services. It has already begun offering huge
discounts to customers who decide to originate and terminate traffic within the
MCI WorldCom network.
Ebbers' gain is clearly BT's loss, but the verdict is still out on who the big
winner will be ultimately. Maybe AT&T and BT are a better match after all,
given their monopoly histories and cultures. Maybe not: Two of the same
could spell double trouble.
It's not the first time that AT&T and BT have sniffed at each other. The two
talked in the early '90s about forming a global alliance, but the egos of
Valance and then-chairman Bob Allen got in the way. This time, with Valance
relegated to the back row by Bonfield and Allen finally pushed out by C.
Michael Armstrong, the big problem was finding a quick response to MCI
WorldCom.
They appear to have done that. AT&T and BT have agreed to a $10 billion
venture that will merge their international networks and build what they call
"the Internet protocol [IP] platform of the future." The still-unnamed venture
would offer multinational companies and other service providers a set of
unified IP-based voice, data and video services across the globe.
The companies, neither of which has been at the forefront of IP technology,
say their planned global IP network isn't just a pipe dream. AT&T points out
that much of the technology has already been tested as part of the U.S.
Internet 2 academic networking project. A prototype of the planned intelligent
IP network is up and running at AT&T Labs (Menlo Park, Calif.).
"IP is changing everything," says George Verghese, international telecom
analyst at the London office of Commerzbank AG (Frankfurt, Germany). "The
first to build out a global IP network will occupy a top position. But that's
easier said than done."
The Key Is IP
Multinational users also seem to like AT&T-BT's new focus on IP, says Bard
Haerland, vice president of worldwide telecom at Unisys Corp. (Blue Bell,
Pa.). Haerland, who had received separate bids from BT and AT&T before
their alignment, argues that owning a vast IP network is essential to providing
uniform global telecom services cheaply. Otherwise, he says, multinationals
won't see radical advances in telecom pricing and services.
Analysts generally agree that the linkup with BT could be good for AT&T.
But one crucial question, they say, is whether the partners will fold all of their
international assets into the new venture. BT has been able to buy into new
telephone companies in almost every key European market, and has been
investing in new Asian service providers as well. These joint ventures could
provide the AT&T-BT alliance with local sales and support staff, as well as
favorable regulatory benefits, such as interconnection agreements. But so far,
neither BT nor AT&T has seemed willing to put all of their eggs in one basket.
For all its merits, the AT&T-BT venture is still vague about some pretty
important details. For example, the two companies talk about a $10 billion
deal. But what does $10 billion mean? Clearly not investment; they're planning
only around $2 billion. A big chunk of it is projected revenue, which should
come as no big surprise. In the race to be the biggest and best, aspiring global
players like to beef up their projections.
As for Global One, no news is probably good news during these turbulent
times of alliance building. The three-year-old venture-which has kept a low
profile since the abrupt departure of Vucins, its previous chief executive
officer-is changing gears to stem losses. It has shifted "from an equal balance
of serving corporate, carrier and consumer customers to a clear focus on
multinationals because they provide the greatest opportunities," says Gary
Forsee, Global One's CEO. "This doesn't mean we will exclude carriers and
consumers."
Global One's network investments will also reflect a focus on multinationals,
says Forsee. The global alliance are currently building a global backbone,
based on asynchronous transfer mode (ATM) switching technology, that will
have greater switching and network capacity to deliver a range of applications,
including ATM, IP, frame relay and virtual private networks (VPNs). Forsee
admits that previous network bottlenecks had made it difficult to offer
seamless services.
And if the Unisource alliance crumbles, as many expect it could over the next
few months, Global One is open to cooperating with one or the other partner.
Talks are under way, Forsee says.
Still, for all three major carrier groups, Asia remains an embarrassing weak
point. Missing is a powerful Asian ally like Nippon Telegraph and Telephone
Corp. (NTT), which MCI WorldCom, AT&T-BT or Global One would die
to befriend. NTT holds the keys to the world's second-largest telecom
market, after the United States. Just one small problem: It has always shunned
global alliances, preferring to invest in companies and infrastructure abroad
itself.
Mitsuhiro Takase, vice president of NTT's strategic planning and international
cooperation division, says the carrier wants to "establish our main business
base with our own efforts." Some examples: acquiring the U.S. Internet
service provider (ISP) Verio Inc. (Englewood, Colo.) and taking a major
stake in a venture to connect the United States and China with 30,000
kilometers of fiber. The investment lets the Japanese service provider own
capacity. It is also dotting Asia with new offices (in such key locations as
Hong Kong, the Philippines and Australia) and partnerships (including a
cellular venture with BT in Singapore).
As the dust slowly settles over the AT&T-BT deal, industry experts ask: Are
the turbulent days of global alliance building over? Don't bet on it. The rising
emphasis by all of the global consortia to build out their networks is sure to
unleash a new round of musical chairs. The big guys will need to work with
those small incumbents or new entrants to expand into national markets. And
conflicts are inevitable along the way.
But AT&T and BT are showing an unusual willingness to resolve problems
fast. AT&T has already agreed to abandon its German alliance with
Mannesmann Arcor AG (Dusseldorf) to avoid a competitive conflict with BT,
which has a stake in the new German entrant VIAG Interkom GmbH & Co.
(Munich). Talk about change for two former archrivals. Perhaps happy
endings aren't just Hollywood fiction, after all.
John Blau is the international editor for tele.com. He can be reached over the
Internet at jblau@cmp.com.
Copyright ® 1998 CMP Media Inc.
techweb.com
|
