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Telecom alliances met with mixed success

Searching for new revenue sources, communications firms are staking claims on foreign shores, but may face a rocky road toward financial success.

    Searching for new revenue sources, communications firms are staking claims on foreign shores, but may face a rocky road toward financial success.

    Although most communications firms see dollar signs when they look at growing international telecommunications markets, major players like AT&T, Sprint, and Qwest Communications International have embarked on a number of international alliances with varying degrees of success.

    The problems are as varied as the partners involved. AT&T's venture with British Telecommunications, announced in 1998, is still struggling with regulatory concerns and network construction, as is Qwest's partnership with Dutch KPN.

    And renewed uncertainty surrounding the future of Global One--Sprint's venture with Deutsche Telekom and France Telecom--only casts a darker shadow over international deals following MCI WorldCom's $129 billion merger with Sprint.

    Domestic firms are searching for new revenue streams to offset falling consumer long distance profit margins. As the U.S. telecommunications market rapidly consolidates, firms are left with little room left to grow at home. At the same time, deregulation and economic progress in many countries has made foreign markets more attractive to U.S. firms. Foreign companies increasingly are willing partners as they face heightened competition in their home territories.

    In the latest example, Bell Atlantic and GTE are considering expanding overseas, even before their proposed merger is finalized in the United States, according to various media reports.

    Yet analysts say domestic firms have been distracted by huge business deals at home, leaving less attention to pay to their foreign partnerships. As well, companies have had trouble managing their sales efforts, and eager to be first out of the gate, have not thoroughly--nor realistically--mapped out their business plans.

    "I think the way people look at these global alliances is often overblown. And the carriers don't do much to avoid that because they talk about these things in terms of taking over the world," said Melanie Posey, a telecommunications analyst at market research firm International Data Corporation. "Usually these alliances end up being something more pedestrian."

    On again, off again
    The outlook for Global One--an international telecommunications venture offering voice and data services for big businesses--is in flux following MCI WorldCom's proposed takeover of long distance rival Sprint.

    Sprint executives have said they are willing to sell their stake in Global One, leaving Deutsche Telekom and France Telecom to duke it out. Deutsche Telekom's interest earlier this year in purchasing Telecom Italia opened a rift between the two European carriers.

    Sprint says now the three partners have renewed talks over the future of the venture, and hope to have a resolution by the end of the year.

    "While we have been, in the past, disappointed by [Global One's] march to profitability, operationally it has done a very good job," said Sprint spokesman Bill White, adding that Global One claims $1.2 billion in annual revenue. "It was really a partner problem, rather than an operational problem."

    Although Global One has successfully served many major customers, rapidly changing market dynamics and differing priorities among the partners appear to have clouded the company's focus--issues with which other international ventures may have to grapple.

    "Owning facilities is the best way to go. If you own the facilities then you have complete control. But the reality is that you often have to have partners," White said.

    "The hardest thing is to make sure competing interests don't get in the way of what the alliance is trying to do," White added.

    Coming up nil
    MCI WorldCom, the company whose business deals helped spur the current spat over Global One, has its own international partnership with Telefonica de Espana, Spain's former dominant phone company. Yet the MCI-Telefonica alliance has bore little fruit thus far, analysts said.

    Seeing eye-to-eye is a challenge that many companies face when in alliances, often with varying success.

    "You need to have a unified and clear strategy which typically has never been done with any of these alliances," said Pascal Aguirre, vice president and general manager for consulting at Renaissance Worldwide, a business and technology management consulting firm.

    MCI partnered with Telefonica in early 1998, but the two companies still offer no services together, according to MCI. The partnership was intended to explore potential opportunities in Latin America, particularly Brazil, but has not yet jointly signed any customers.

    MCI WorldCom's international spokesman Manuel Wernicky said the company prides itself on owning an entire end-to-end worldwide network, avoiding reliance on other phone companies.

    "One of our advantages is we don't depend on other carriers," Wernicky said. "That was one of the problems with Global One. It's simply because [the partners] can't see eye-to-eye. We're one company and we know where we want to go. That's certainly an advantage that we have over the consortiums."

    Regulatory hurdles
    This week AT&T and British Telecommunications announced they would spend $3 billion to build high-speed voice and data networks as part of their "Concert" international joint venture.

    Executives recently said the venture would link 100 cities by 2001. But Concert still has the majority of its network construction ahead of it. And, the AT&T-British Telecom alliance already has been criticized for lacking a solid Internet strategy.

    Despite having been formed in mid-1998, British Telecommunications representatives dispute that the venture is behind schedule. Yet after being announced in 1998, the partnership has been hampered with regulatory concerns, specifically over domestic law enforcement's ability to wiretap foreign phone calls.

    When the companies forged their partnership, they indicated that regulatory approval would take at least a year, said BT spokesman Jim Barron.

    "Certainly Concert has not been a failure. Concert is a shining example of what an international venture should be," Barron said, noting that Concert has 4,700 customers and $1.1 billion in annual revenue.

    "One of the keys to success is the autonomy of management," Barron said.

    AT&T representatives said the Concert venture is a separate company with its own management team that pools the customers and resources of both AT&T and BT. "This is where the success is going to lie," said AT&T spokeswoman Pat Robinson.

    Analysts say that the structure of the AT&T-BT alliance is possibly the best suited for success.

    "[BT-AT&T] is closer to a joint venture than it is a strategic alliance, which gives the management the ability to effect things," Renaissance's Aguirre said. "The industry needs to start realizing that [an alliance] is not appropriate for the business they operate and their strategic intent."

    Qwest Communications International also is testing the international waters with a partnership with Dutch telecommunications company KPN. But KPNQwest, as the venture is known, also is in the network construction phase--a process that could still take years.

    "Ultimately most projects just take a lot longer than people expect," said Lisa Pierce, a telecommunications analyst at GIGA Information Group. "It's not that it's not coming, it's just that it's so far out there that they're still digging the holes for the fiber."

    Bell Atlantic and GTE, whose merger is still pending before the Federal Communications Commission, have also professed a desire to make inroads overseas. The two companies have said either making an investment or forging a partnership with a European carrier is at the top of their agenda, according to a Bloomberg report.

    Whether the overseas ventures prove to ultimately be considered successes or failures remains to be seen. But analysts suspect the coming 12 months will be crucial.

    "This next year is going to be really telling. AT&T is going to have to come out with their strategy [specifics] soon. I think they owe that to their customers," Giga's Pierce said. "Global One will probably be resolved within three to six months. And WorldCom, with its Sprint merger, may take their eye off the ball overseas."

    Bloomberg contributed to this report.