D. Telekom's play for Qwest, US West underscores global trend

The German phone giant is rumored to have made a substantial bid to buy U.S.-based carriers Qwest Communications International and US West.

3 min read
German phone giant Deutsche Telekom appears ready to test the international communications waters again, just six weeks since its Global One joint venture dissolved.

Deutsche Telekom today is rumored to have made a substantial bid to buy U.S.-based carriers Qwest Communications International and US West, after several days of scuttlebutt concerning a deal.

Qwest has already said it is in talks with suitors, but company representatives today declined to comment on the reports of a specific offer.

A deal would give Deutsche Telekom, one of Europe's largest communications companies, the significant U.S. presence it is lacking. Analysts say the moves--if they come to fruition--are made all the more necessary by the recent end of Global One, the three-way international joint venture between Deutsche Telekom, France Telecom and Sprint that crumbled in January.

But the acquisition interest also is a reflection of the need for breadth in the increasingly global communications market, which has seen a handful of multibillion dollar mergers over the past year.

"They want to be a global player. It's not just about breaking into the U.S. market," said Courtney Munroe, a communications industry analyst at International Data Corp., a market research firm.

The telecommunications merger scramble has been precipitated by falling profits in the traditional local and long-distance voice business. Dozens of companies are looking for new Internet-based technologies to deliver a wider variety of services and a larger customer base to buy them.

The merger marriages provide entrenched competitors such as Deutsche Telekom with new state-of-the-art networks and technologies, while allowing the upstarts to gain access to the large customer bases, marketing and sales know-how of their older competitors. The merger mania has escalated over the past year as companies fear being left without a partner. see story: Mergers: How big is big enough?

If and when last year's combination of MCI WorldCom and Sprint is approved, the combinations will provide a worthy global adversary to AT&T and a slew of international players, raising the stakes of the telecommunications game.

Europe and Asia represent the largest growth markets for communications services, according to experts. But Deutsche Telekom already has cornered a significant portion of the European market, making U.S. expansion an obvious target for the carrier.

"DT, while formidable in one area of the globe, is still a minnow in the scheme of things," said Jeff Kagan, an independent telecommunications analyst. "They don't want to be left without a seat when the music stops."

Analysts say communications company executives believe they must continue to grow, because future telecommunications survivors will be several times larger than today's carriers.

"The future DT sees is that worldwide communications companies will be worth hundreds of billions of dollars. So in that world everyone is still just a minnow. We're just in the beginning of that change," Kagan said.

Analysts said the end of the Global One alliance forced Deutsche Telekom's hand, sending the carrier scrambling for a dance partner. The company had expressed interest in Sprint, prior to that company's merger with MCI WorldCom, and Global Crossing also has been rumored as a potential partner.

"I think the end of the Global One partnership put a lot more pressure on (Deutsche Telekom) to do a deal," said Elliott Hamilton, senior vice president at communications market research firm the Strategis Group.