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BT STRATEGY IN TATTERS AFTER WORLDCOM WINS MCI

British Telecommunications Plc may be $7bn better off in cash terms as a result of the agreement to sell its 20% stake in MCI Communications Corp to WorldCom Inc, but its international strategy is in tatters. Not that this troubles the conservative institutional investors who have frowned on the company’s efforts to break into the US market. Unable to see beyond the next quarter’s figures, they are hoping the company puts its MCI windfall into a share buy-back which should do wonders for earnings per share in the short-term. And the BT board says this hasn’t been ruled out. But this doesn’t get over the problem that BT’s market share in the UK is being chewed up by aggressive competitors and this process will continue. And frighteningly for BT, among those competitors are WorldCom which has installed fiber-optic networks in the main European cities to tempt major companies that have, up to now, provided BT with a rich source of revenue. BT needs to secure future earnings by spreading its international operations and the richest market of all in the US remains a big attraction. However, the MCI debacle seems to have so exhausted the top brass at BT that it seems doubtful if they have the energy for another effort. Moreover, because its shares are so cheap compared with the inflated value of US telcos, it lacks financial clout. Nonetheless, if a US partner stepped forward, BT may well welcome a way out of its current misery. The biggest operator of all – AT&T – is known to enjoy close relationships with the BT board and now it has a new management structure that can plot a long-term future. According to the Wall Street Journal, Bell Atlantic Corp and SBC Communications Corp have had exploratory talks with BT to see what role they could play in its future plans. BT confirms that it has approaches but says that because it has been shackled by the MCI situation, it hasn’t been able to persuade them. Now it has that freedom.

Second-rate player

BT’s board have lost considerable credibility over the whole MCI affair. To many, it confirms that those traditional companies with backgrounds in telephones just cannot compete in the new world of data communications – where companies like WorldCom can spring from nowhere to dominant positions. BT has put brave words on its failure – it claims that the loss of MCI has not slowed its strategy and that MCI will continue to distribute its Concert Alliance products in the US. But potential international partners will see it as a second-rate player in a market becoming dominated by rougher, tougher adversaries like WorldCom. Spain’s Telefonica – which joined the international alliance with BT and MCI in February – was tight-lipped about the latest developments although Spanish analysts predicted it would now have to reconsider its international strategy. The company needs a strong financial ally for its efforts to break into South American markets. In Portugal, the consensus was that Portugal Telecom will stick with the Concert alliance and the company claimed the MCI news would have little effect. But in order to regain some credibility BT needs to find a new US partner quickly. BT has always been a cash-rich company and the WorldCom deal means that it walks away with a profit of $2.25bn from its investment in MCI. The pound even soared in trading on speculation that this huge gain would need to be converted into sterling. But if BT is to have a future as an independent company, it will need all its cash resources to buy an international presence. Those calling for the money to be returned to shareholders, might as well call for BT to give up and put the whole organization up for sale.

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This article is from the CBROnline archive: some formatting and images may not be present.

CBR Staff Writer

CBR Online legacy content.