BT pays a high price to freeze out its US rival

COMMENT: `Most observers, and indeed BT itself, had not expected the missing French piece of the jigsaw to be filled in until some time next year. But the whole process of alliance building has been tackled with speed'
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On the face of it, BT is paying a fancy price to complete the network of telecom alliances it has been seeking to build across Europe for the past three years. Sir Iain Vallance yesterday coughed up pounds 1.1bn in cash for a 25 per cent stake in a joint venture with the French group Compagnie Generale des Eaux whose main asset is a loss-making mobile phone operator.

In truth the prize is much greater than that. By securing the CGE deal BT has frozen out its most potent competitor, AT&T of America, from the French market and ensured that it is in prime position to become the main competitor to France Telecom when European telecom markets are liberalised in 1998.

In theory, deregulation should mean a free-for-all in telecoms. In reality, the markets, particularly those in southern Europe, are likely to be carved up between duopolies.

The key to success, then, is to sign up the right partner. In France, CGE, with its existing mobile phone operation and its clout as a giant integrated utilities group, was the partner everyone was courting.

BT's success in tieing up a deal will not only frustrate AT&T. It will also come as a blow to the alliance of Dutch, Swiss, Spanish and Swedish telecom operators riding along on AT&T's coat tails.

The agreement with CGE was reached in remarkably short time. Most observers, and indeed BT itself, had not expected the missing French piece of the jigsaw to be filled in until some time next year. But the whole process of alliance building has been tackled with speed. In the three years since BT formed its $1bn alliance with MCI, the second largest carrier in the US, it has developed further alliances in Spain, Germany, Italy, Sweden, the Netherlands, New Zealand, Japan and India.

In most cases it has selected its partnerships well. In Italy, it has paired up with Mediaset, the communications group run by former prime minister Silvio Berlusconi. In Germany its partners are Viag and RWE, two industrial groupings with a presence in the telecom market. In the Netherlands, it is allied with the national rail operator. The alliance with CGE may be the most expensive yet but the value to BT will surely lie in having seen off the bigger threat across the Atlantic.

Tourism grows as industry shrinks

On a day when Britain's visible trade deficit slipped a further pounds 1.2bn into the red, it might seem gratuitous to remind the country's manufacturing sector that tourism is one of our best export earners.

Last year 24 million overseas visitors came to Britain and spent nearly pounds 12bn. This was an increase of 20 per cent on the previous year. Inbound tourism is growing at three times the average world rate.

True, we are still running an overall deficit in tourism but it is less than a third the size of the trade gap in goods. Moreover, Britain is well on the way to capturing 6 per cent of the world tourism market by the turn of the decade compared with 4.4 per cent in 1994. Our share of world trade in manufactured goods, by contrast, continues to shrink.

What is it about Britain that is attracting all these folk? Britpop and the sudden mass appeal of Jane Austen? Surely not. Oasis and Mr Darcy do not explain why the number of visitors from Taiwan rose almost threefold last year.

The cheap currency visitors from abroad discover when they land at Heathrow or emerge from the Channel Tunnel is undoubtedly a powerful magnet. Between 1994 and 1995 sterling depreciated by 5 per cent against a basket of currencies and considerably more so against the franc and the mark. That helps explain why nearly two-thirds of all overseas visitors came from Europe.

But advantageous exchange rates ought to provide the same stimulus to exporters of manufactured goods.

It is fashionable to denigrate tourism and the McJobs it creates. But not all the 1.7 million people who make a living out of it in Britain are dispensing ice creams at Alton Towers. Tourism is also a remarkably cheap way of creating jobs at relatively little expense to the public purse. The British Tourist Authority reckons that for each of the 30,000 jobs it created last year, the cost to the taxpayer was pounds 1,000. Its numbers are probably a bit self-serving but the cost per job is undoubtedly a fraction of the sums lavished by governments of all hues on dubious manufacturing projects.

It might be a little depressing to picture a Britain preserved in aspic and turned into a giant theme park as its manufacturing prowess disappears. But the Chancellor should bear in mind tourism's contribution to the economy when other less deserving causes come knocking on his door for handouts.

NAPF rushes to the defence of the City

It must have been the perceived threat from Labour that turned much of yesterday's corporate governance policy document from the National Association of Pension Funds into a diatribe against critics of City institutions.

For those intellectual masochists fascinated by the largely circular arguments about short-termism and its effects on British industry, there is plenty of meat here, with a robust defence against the charge that the institutions are always churning shares and demanding excessive dividends that undermine capital investment. The NAPF even offers open encouragement to members to accept lower underwriting fees for rights issues, perhaps with a sliding scale depending on the discount and the quality of the company. Fund managers are beginning to realise that the gravy train of fixed 1.25 per cent underwriting commissions is running into the buffers.

But although some of the short termism arguments are tedious in the extreme, attacking the symptoms of low capital investment rather than the causes, the debate is still a live one inside the Labour Party and has been a driving force behind the development of interventionist policies on corporate governance.

Some of the most senior Labour front bench spokesmen are privately scornful of the outpourings of Will Hutton, editor of the Observer and author of The State We're In, who believes many of British industry's problems can be blamed on the financial system and on institutional investors in particular.

But frontbenchers are forced to admit that these notions have struck a tremendous chord in the Labour Party and cannot be ignored in policy making. The NAPF's decision to hold its own fringe meeting at the Labour conference shows it also appreciates this.

A pity, then, that the NAPF cannot give more detailed guidance on some of the micro issues that are still bothering many shareholders and boards of directors. For example, what exactly is an acceptable long term incentive plan for directors, as recommended by the Greenbury report? Despite all that has been written, there are no clear benchmarks. Some directors are determined to abuse the system but the rest are rather confused. The NAPF, while insisting on the general point that performance targets should be realistic, thinks the detail is a matter for individual members and the companies they invest in. That is just passing the buck.