Telco giants' pact lacks Net push

A partnership between AT&T and British Telecommunications, telco giants in their own right, may result in a stronger global presence for AT&T and a share of the U.S. market for BT, but the deal will leave much to be desired in terms of Internet presence for both companies.

"I don't think this deal will increase [AT&T's] Internet presence significantly, if at all, because BT also doesn't have a strong Internet business," said John Rooney, president of the investment banking firm Hornblower & Weeks. "I think [AT&T chairman] Michael Armstrong will need to find an Internet access company to acquire."

By contrast, AT&T competitors MCI and WorldCom, who are moving toward a $37 billion merger, have a strong Internet business. The European Union, due to antitrust concerns, have made approval of the MCI-WorldCom deal contingent upon MCI selling some of its Internet assets.

"AT&T and BT have been motivated by the MCI-WorldCom merger. This merged company has a very strong Internet network," said Saint-Aime. "AT&T and BT are planning to put $1 billion aside a year to improve their Internet networks."

In June, AT&T moved to acquire Tele-Communications Incorporated in an all-stock deal worth an estimated $48 billion. Under the terms of the agreement, AT&T is to combine its consumer long distance, wireless, and Internet services with TCI's cable, telecommunications, and high-speed Internet business to create a new subsidiary called AT&T Consumer Services.

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This deal with TCI, however, did not increase AT&T's international presence.

"Everyone has been asking what AT&T planned to do in order to enhance their overseas presence," said Marjorie Saint-Aime, an analyst at Goldis-Pittsburg Institutional Services. "By forming a joint venture with BT, it is one of the best moves they could have thought of because BT has a strong worldwide presence."

MCI and Worldcom have an alliance with Telefonica de Espana, Deutsche Telekom, France Telecom, and Sprint are in an alliance called Global One.

"AT&T is in a position of playing catch-up," said Rooney. "Armstrong has been aggressive because they have been sitting in a local business, speaking on a global scale, and missing out of the global telecom market which is about $40 billion."

Rooney estimates that the market will be worth as much as $200 billion which "is a big piece of pie to be missing out on."

AT&T and BT said yesterday that they would pool their international assets into a new company to serve multinational clients. The group will have around 5,000 employees, annual revenues of more than $10 billion in the first full year, and operating profits of around $1 billion.

By investing $1 billion, Rooney says BT is getting a cheap deal to access the U.S. Market. "Of the world's multinational companies, only 10 percent are in the U.K.," said Rooney. "Most are located in the U.S. And BT needs to get into that share."

In June, America Online rebuffed AT&T's tentative buyout offer. AT&T's Armstrong believes that the Internet is a main growth priority for the company, and AT&T has in the past few months entered into marketing deals with Internet search companies Lycos, Yahoo, Infoseek, and Excite.

"I am a firm believer that they [AT&T] will try to buy out both AOL and GTE," said Rooney. "They can only quickly build their Internet presence through acquisitions."

AT&T will have to act fast. Reports this morning claim that GTE is in merger talks with Bell Atlantic to form a $53 billion telecommunications powerhouse.