Andy Green, head of BT GS, told ComputerWire that the vendor is in contract talks with Reuters after the latter ended a joint venture agreement with BT rival Equant last month, in a move that saw the JV vehicle company called Radianz acquired outright by Reuters for $110 million in cash.

He said that if a contract is agreed, it would be worth several times more than BT’s contract with Unilever, which is valued at 1 billion euros ($1.3 billion) over seven years.

BT announced on Monday that it had reached a takeover agreement with El Segundo, California-based network management rival Infonet in a move that values the target company at 520 million pounds ($965 million).

Green said the acquisition is designed to improve BT’s ability to compete for network integration and management contracts with multi-national corporations. He said: It is all about scale. As our accounts expand globally, they want us to be strong where they are strong.

Green highlighted Infonet’s 1,800 clients and its 1,100-strong workforce as two of the main attractions for BT. He said Infonet’s strength is with multinational accounts such as Nestle, Siemens, and DHL, with BT’s relative lack of an international infrastructure making it stronger at the level of large clients with several sites within the same country. Based on analysis of recent invitation to tenders that both companies have recently pursued, Green said there was only a 10% overlap between BT and Infonet.

The $965 million price tag seems high for Infonet, given that it reported a $66.6 million loss in its last financial year. BT Global Services itself has yet to break into the black since its latest re-branding, reporting a loss of $66 million in its first quarter ending June 30, 2004.

However, Green is optimistic about the potential financial synergies between the two companies. BT expects cost savings of $150 million to be generated in the third year following the acquisition by eliminating network overlaps and increasing purchasing power in buying extra capacity.

Infonet’s takeover by BT will ruffle the feathers of some of its channel partners, which account for 30% or $187 million of its total revenue. Two of the largest are Deutsche Telekom and KPN, which between them account for between 15% and 20% of Infonet’s indirect revenue. Both might reconsider their distributor status if Infonet is acquired by one of their major rivals.

Green said the Infonet deal will put clear, blue water between BT and its main competitors in the network services space, which he listed as Equant, AT&T, MCI, Sprint, Cable & Wireless, and NTT. He also acknowledged that IT services companies such as IBM, Hewlett-Packard, and EDS, which recently secured a major $1 billion network management deal with Bank of America, are also contenders.

BT’s main rival in the corporate network services space is Equant, which continues to struggle financially under the ownership of France Telecom. Given that both BT Global Services and Infonet are unprofitable at a net level, this begs the question whether anyone will ever make money out of building, selling and managing corporate networks?

Green said: Margins are under pressure…but there are fantastic gross margins to be made on laying a piece of dark fiber and selling it, and the trick is to sell it. The ‘build it and they will come’ mentality of operators between 1999 and 2001 was a bad idea. We are now spending the capital only when we get the customers.