The Orchestration of Telecom Alliances

While much is made of the civil war brewing among American telecoms, three major players are busy girding for world war, and the first shot has already been fired.

"These carriers will have their hands full holding onto market share at home," said Bob Rosenberg, president of Insight Research. "More than anywhere else, growth will be in international markets."

But providing multinationals with transnational network services is beyond the capability of even the mightiest telecom titan. In response, U.S. telcos have taken to forging strategic ties with their foreign brethren. As in World War I, the telecom world war will pit powerful international alliances against one another as they struggle for multinational market share.

Concert Strikes First

The Reston, Va.-based Concert, a billion-dollar joint venture between MCI and British Telecommunications, is the first of these transatlantic telecom alliances. Under the agreement, BT bought 20 percent of MCI for $4.3 billion, and will invest $750 million in the venture to MCI's $250 million during the next five years.

Concert, which is managed on a fifty-fifty basis, develops advanced telecom services sold and distributed by its parents, who have divided the world between them. MCI's sphere of influence encompasses all of the Americas, while BT is responsible for Europe, Asia and the rest of the globe.

Concert is targeting the Barclay's Banks, General Electrics and Merrill Lynches of the world with services such as virtual voice, data and video networks, frame relay, network management and systems integration. "These are the products and services large companies with many points of presence need," said Eugene Eidenberg, assistant to the chairman of MCI.

Eidenberg sees a $10 billion market for Concert's services, but believes it may be worth hundreds of billions as the market expands and economies of scale kick in. Initially, however, the Anglo-American combine will focus on the crme de la crme, most of whom are already MCI or BT customers.

These multinationals traditionally employed a "mix and match" strategy for their international networks, he said, parceling out pieces of their business to various carriers. "Our whole game is to put a premier set of services into the global marketplace," Eidenberg said, "services they just can't buy from any other carrier off-the-shelf."

Sprint and the

Franco-Prussian Factor

MCI's arch-rivals in the long-haul business, AT&ampT and Sprint, have not been idle. As the BT/MCI deal neared final approval this summer, Sprint announced it too would peddle a 20 percent piece of itself to a larger European carrier; to two of them no less.

Sprint's prospective partners, Deutsche Telekom and France Telecom, are Europe's two largest carriers, and both state-owned monopolies.

Even though BT was privatized ten years ago and operates in the world's most open telecom market, U.S. regulators took more than a year to bless the MCI deal. As long as its prospective partners are monopolies and their markets remain closed, Eidenberg said, Sprint faces a tougher and longer approval process.

"I certainly think it will be more difficult than the MCI/BT deal," said Eric Nelson, director of international affairs for the Telecommunications Industry Association.

Eidenberg used AT&ampT's recent history to illustrate what lies ahead for the French and Germans.

In the ten years since divestiture, he said, AT&ampT saw long-distance prices drop 60 percent, lost close to 40 percent market share, wrote down billions of dollars in underutilized assets and laid off at least 150,000 people.

"BT has already gone though this," he said, "The French and Germans haven't even begun to cope with it."

Nonetheless, Eidenberg professed healthy respect for the two carriers, both with whom he said are formidable, well financed and technically advanced companies that can do anything MCI or BT can, technologically speaking.

"What they are not are fast-to-market, marketing-oriented, customer-focused telephone companies in a competitive environment," Eidenberg said. "We have a head start and we know how to do what they don't yet know to do, and that is compete."

Ma Bell and friends

AT&ampT is unquestionably a force to be reckoned with, and as Eidenberg put it, "has oceans for pockets." AT&ampT's WorldPartners Association was built around a 1993 agreement to offer compatible services with Japan's KDD and Singapore Telecom.

This year, Telecom New Zealand International, Australia's Telstra, Hong Kong Telecom and most significantly, Europe's Unisource, a joint venture between Dutch, Swiss and Swedish telcos, agreed to join.

But because most carriers want to maintain a healthy distance between themselves and the world's most powerful telco, World Partners is more a loose coalition than a strategic alliance. And nearly all of AT&ampT's world partners are monopolies.

Asked Eidenberg: "You tell me what's faster to market, eight or nine companies sitting around in a room trying to decide what they can do globally, or a focused joint venture with two companies already competing in their respective marketplaces?"

Rosenberg seems to agree: "I think MCI is going to give AT&ampT a real horse race in terms of serving international companies around the world."

Ironically, this international contest between technological powerhouses may ultimately have little to do with technology. Indeed, Eidenberg said MCI and BT were brought together by the shared vision that success in the multinational marketplace depends more on competitive capability and speed to market with products and services.

"We are not going to be a number two trying to catch up with number one, we are going to set the standards. And we think we've got at least a year and a half to two years head start on our competitors," said Eidenberg. "I think that is our principal advantage; it's not technology."