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AT&T, BT set $10B deal
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July 27, 1998: 7:46 p.m. ET
Telephone giants to create global service venture targeting businesses
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NEW YORK (CNNfn) - AT&T Corp. and British Telecommunications PLC are creating a $10 billion joint venture to provide international telephone services to businesses.
The deal, which the companies announced Sunday, opens up the European market to AT&T and gives British Telecom (BT) access to the North American market, which it lost when its proposed merger with MCI Corp. collapsed.
The companies said the deal will combine their existing networks, all of their international traffic and their multinational accounts in selected industry sectors.
AT&T and BT also said they will develop an Internet Protocol-based (IP) network to support such services as global electronic commerce and other Internet-based operations.
The new venture, to be named later, will be based in the eastern United States with approximately 5,000 employees. AT&T and BT said it will be a free-standing company run by executives from both companies. BT Chairman Iain Vallance will be the new company's first chairman.
"The deal gives us reach to some 283 countries," AT&T Chairman Michael Armstrong told CNNfn Monday. "It also gives us a facilities-based strategy to provide universal service to our customers."
The two telephone companies said they expect the business, which will be owned equally by AT&T and BT, to generate about $1 billion in operating profits on more than $10 billion in revenue in its first full year.
"This is not a cash transaction, this is an asset transaction," said Peter Bonfield, BT chief executive. "It's accretive from essentially day one."
The companies also said they expect profits to grow at 15 percent to 20 percent a year, a goal Armstrong said is well within reach.
"We see a market out there today that is a $40 billion market that's growing at 20 percent," Armstrong said. "When we're saying we're going to grow at 15 percent, I think we're trying to be conservative. There's much more out there in terms of growth ahead."
Armstrong last month helped ink the proposed $48 billion buyout of cable giant Tele-Communications Inc. (TCOMA).
Asked why he was taking such an aggressive stance, Armstrong said it was clear that AT&T must be aggressive to keep pace in the global telecommunications boom. (236K WAV) or (236K AIFF)
BT's bid to enter the North American market hit a roadblock last year when MCI accepted a higher bid from WorldCom Inc. The British company, however, already owns a stake in MCI's Concert Communications unit, which offers global telephone services to corporate clients.
If the WorldCom-MCI merger is approved by the Federal Communications Commission next month, BT will receive about $7 billion for its stake in Concert. In turn, AT&T will begin selling Concert services in the United States under the name AT&T Concert.
The companies said they expect the deal to be completed within 12 months. Although AT&T and BT said the venture isn't a prelude to a full-scale merger, it is almost certain to face heavy federal regulatory scrutiny.
"On the one hand, AT&T says this is going to be a very powerful competitor," said Jeffrey Kagan, analyst at Kagan Telecom Associates. "On the other hand, they say they don't think they'll have many regulatory problems. I think they're in a state of denial. I think the regulators are going to be very tough on this."
Separately, AT&T and BT said they will invest $500 million each in U.S. businesses involved in "high technology and emerging communications markets."
Shares of AT&T (T) gained 1-5/16 to close at 59-15/16 in Friday trading. British Telecom shares climbed 88 pence to 910.5p in morning trading in London. BT (BTY) shares closed at 137-3/4, up 7/16, in Friday on the New York Stock Exchange. 
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