BT lines up major US pact

BRITISH TELECOM is on the verge of signing a major strategic alliance in the US which would go some way to making up for the failure of its merger with MCI. An announcement is expected to be made next month.

BT is believed to be in detailed negotiations with AT&T, the US long- distance giant. It has also held talks with Bell Atlantic, the local operator.

Shares in BT rose above 700p for the first time in their history yesterday on reports that BT'S chief executive, Sir Peter Bonfield, and Michael Armstrong, his counterpart at AT&T, had agreed to form a joint venture which would include the two companies' international businesses.

Both companies refused to comment. Shares in BT firmed 5.5p to 700p in a falling market as analysts welcomed the prospect of the company finally finding a US partner. "It's all very well being a strong player in Europe, but you have to make your mark in the US," said one.

However, analysts were unsure how an international alliance would be structured. British Telecom executives are particularly keen to find a way for Concert, the subsidiary which specialises in offering specialised telecoms services to multinationals, to gain access to businesses in the US.

Although Concert has been successful at picking up business in the UK and Europe, the US market offers much more potential because most multinationals are based there.

However, a partnership with AT&T would raise potential conflicts. The US group has a 36 per cent shareholding in World Partners, the global telecom alliance which includes KDD, the Japanese giant, Singapore Telecom and Australia's Telstra. World Partners offers similar services to Concert.

Meanwhile, AT&T also offers similar services to large companies in Europe through its joint venture with Unisource, the alliance of Dutch, Italian and Swiss telecoms operators.

As a result, an alliance between BT and AT&T would involve BT winding up Concert and switching its customer base to World Partners. Alternatively, AT&T would pull out of Unisource to join Concert.

Analysts said the move would ease the ferocious competition in the multinational telecoms market. "Structurally, for the multinational market it wouldn't necessarily be a bad thing if two of the largest players decided to collaborate rather than compete," said Deborah McCutcheon, telecoms analyst at Robert Fleming. "But it would require an enormous amount of back-tracking by both companies."

Any deal between BT and AT&T - the dominant players in their respective markets - would be subject to detailed scrutiny from competition authorities in the US and EU.

Nevertheless, BT is shortly expected to announce a US partnership of some kind. Its strategy is still officially on hold until it receives the $7bn (pounds 4.3bn) cash payment from MCI which will only arrive once the MCI-WorldCom deal is completed, probably towards the end of July.

However, this does not stop BT from unveiling other partnerships. Analysts believe that the company may choose to make further announcements around the time of its annual general meeting on 15 July.