Telephone operators prepare for the ‘new world’

Date: 25/04/1996

By Tim Jones

THE global market for telecommunications services is growing fiercer every day and the former monopolies that dominated it increasingly threatened.

Giants are stirring. The demand for services in the developing world is expected to cost telecoms companies 400 billion ecu, while the cost of funding the global telecom industry's planned investment programme will be double that.

Cable television companies, online services and even railways are competing for a slice of this expanding pie.

Pessimists have suggested that as much as 40&percent; of national operators' markets and 70&percent; of their profits could be lost within five years as liberalisation takes an icy grip on the European markets. “You must be big and international to compete during the next ten years,” says Erik Theyssons, telecoms analyst at Banque Bruxelles Lambert.

What started as a round of joint ventures and cooperative alliances has begun to turn into full-scale mergers. At the beginning of April, 'baby bell' regional operators SBC Communications and Pacific Telesis announced they were forming the US' second largest telecoms company in a 13-billion-ecu merger. A week later, one of the industry's biggest and most aggressive players, British Telecom, revealed it was in talks with Cable & Wireless to form a 40-billion-ecu international telecoms operator with a significant foothold in the Chinese market.

With less than two years to go until the EU's national monopolies have to open their voice telephony markets to full competition, telecoms operators are repositioning themselves for the new world.

That is why AT&T and the regional 'baby bells' are coming to Europe in such numbers.

For most European operators, the best way to deal with the emerging free market is to join one of the three major 'global alliances'. In one corner is the BT/MCI (Concert) alliance, with 'Unisource' - grouping the Dutch, Swedish, Swiss and Spanish into an alliance with equity participation from AT&T and Singapore Telecom - in the other. The newest entrant on the market is the huge 'Global One' alliance, launched in January by France Télécom, Deutsche Telekom and Sprint.

Behind each alliance is one rationale: as basic voice-telephony profits are threatened by alternative networks, national operators should eke out big profits in corporate communications.

This is because operators going to the stock market in search of investors - a process set to culminate in the imminent 8-billion-ecu Deutsche Telekom listing - need something new to offer.

Investors want evidence of serious earnings growth potential and, at the moment, the underdeveloped corporate communications market in Europe is an obvious area for generating cash.

Since whole areas of telephony are no-go areas until full liberalisation in 1998, the alliances are concentrating on 'closed-user groups'. These are large multinational companies with vast and disparate internal communications systems. A company like Philips or Siemens has huge internal communications needs and has to deal with a myriad of national operators.

Now, Unisource, Global One or BT/MCI can offer them a 'one-stop shop' to deal with all their communications by leasing lines from all the different operators and bunching them into one service.