BT and AT&T have pulled the plug on their joint venture, Concert.
UK telco BT and US telco AT&T have announced that they will unwind their Concert joint venture. The companies will cut 2300 jobs, and will take substantial charges. BT will take a $1.2 billion charge for Concert’s goodwill and fixed assets, while AT&T will take a $3.5 billion charge for the costs of dissolving Concert plus an extra $1.8 billion write-down from buying BT’s shares in AT&T Canada.
The announcement comes as no surprise. Concert was an unprofitable venture, for two major reasons. Following its creation, international call and data charges plummeted due to network overcapacity, hugely reducing the venture’s revenue potential. At the same time, many of its intended customers ran into financial problems. And it competed with its parents’ business services operations.
Axing Concert, then, is probably the best possible move for both companies. It allows BT to complete its restructuring plan, and will also improve the UK firm’s debt situation. BT had been investing around $700 million a year in the venture, and would have had to invest an additional C$725 million in AT&T Canada before June 2003. And while the write-off is large, at least BT will end up with a net cash inflow of $108 million.
Concert’s assets will now revert to its parents. BT gets the unit’s infrastructure in Europe, Middle East and Africa and in the Americas, while AT&T gets the Canadian joint venture plus the Asia Pacific network. BT expects its part of the business will be profitable by 2003, while AT&T will shore up its position in a region that still shows high growth.
The venture seemed like a good idea at the time. But Concert demonstrated the major potential flaw of such agreements – partly due to market conditions, and partly due to its very structure, it didn’t fit with either partner’s strategic direction. Rather than extending their global reach without the costs of an acquisition, Concert proved to be a millstone around both parents’ necks.
