BT And AT&T Form $10B Alliance

British Telecommunications and AT&T are combining their international telephone operations and creating a new Internet system in a $10 billion alliance to put them "at the forefront of the global information age."

"We've got the two greatest brands standing shoulder to shoulder and we think we're going to transform the global telecommunications industry," the BT chief executive, Sir Peter Bonfield, told reporters Sunday.

BT, the biggest British telephone company, negotiated the joint venture with AT&T, the biggest U.S. carrier, after BT's earlier plan to merge with MCI Communications Corp. was busted up by a higher offer from rival WorldCom Inc.

To join forces with BT, AT&T will leave two other international deals: The AT&T-Unisource alliance that has Dutch, Swedish and Swiss partners, and its WorldPartners arrangement, a loose alliance with other international long-distance companies.

"The merging of our international assets to form this global venture will enable BT and AT&T to deliver in a unique and powerful way the seamless global services our multinational customers need and want," said AT&T's president, John D. Zeglis.

The companies said their 50-50 venture, to be named later, will be based in the eastern United States with some 5,000 employees. It will be a free-standing company run by executives from both BT and AT&T.

The BT chairman, Sir Iain Vallance, will be its first chairman.

The telephone giants estimated that the business will have $10 billion in revenues and operating profits of $1 billion in the first year, which will improve earnings at each company "from day one."

The revenues would equal about 13 percent of the combined turnover of the two companies: AT&T revenues are about $52 billion annually and BT's revenues are about $26 billion.

The companies predicted 15 percent annual growth after the first year of operations.

Their goal, they said, is to create jobs rather than eliminate them, although they acknowledged a few overlapping jobs may be in trouble as the deal comes together.

The companies will use their combined international networks to become a "carrier's carrier" for long-distance services offered by telephone companies operating in numerous markets. BT and AT&T said that 90 percent of the global telephone market will soon be open to significant competition, and they want to woo business from startup phone companies in numerous markets.

They will not hold stock in one another, however, and have no plans to bring other companies in as partners in the joint venture.

BT and AT&T said they will be able to "provide an outstanding range of global services, far greater than either BT or AT&T could provide alone or with their current alliances."

The companies said their Internet operation will be a global system "unparalleled in capability and reach," facilitating international elctronic commerce and communications and serving as a host for Web sites.

The venture will operate in three main areas:

A worldwide voice and data business that offers telephone networks to multinational corporations and other big institutions.

A global sales and service business that initially will target corporate clients in the financial, oil and information technology businesses.

An international carrier services business that will develop low-cost communications links around the world for both individual and business customers.

In a related development, BT and AT&T also will invest $1 billion, on a 50-50 basis, in U.S. businesses involved in high technology and "emerging communications markets."

After losing its deal with MCI, the No. 2 U.S. long-distance carrier, BT went straight to the top of the U.S. market in cutting a deal with AT&T, which has been expanding aggressively since chairman C. Michael Armstrong took over last year.

AT&T agreed in June to a $32 billion merger with U.S. cable giant Tele-Communications Inc., and just last week closed a $11.3 billion takeover of Teleport Communications Group.

BT's agreement to purchase MCI for $24 billion was outdone by a $37 billion offer from WorldCom. The new deal will be bigger internationally for BT, but unlike the arrangement with MCI, it will not make BT a player in the domestic U.S. telephone market.

BT already has a global partnership with MCI, called Concert, that BT plans to buy out as WorldCom buys MCI. AT&T will begin selling Concert services in the United States under the name AT&T Concert as the bigger deal with BT undergoes regulatory scrutiny.

Although the companies will need approval from regulators in the United States, Britain and the European Union, they predicted they can close on the deal within one year.

Written by Dirk Beveridge