BT planning pounds 45m stake in Portugal

British Telecom has expanded its network of European alliances, yesterday announcing moves to buy a stake in Portugal Telecom, the country's main phone group.

It will create an alliance that BT hopes could unlock opportunities in the fast-growing Brazilian phone market, the largest in Latin America. The announcement also appeared to move BT closer to an even bigger goal of prizing Telefonica of Spain away from its existing partnership with MCI's US rival, AT&T.

The developments come as BT prepares to hear the outcome of today's extraordinary general meeting, at the Wembley Conference Centre, to approve the proposed pounds 12.5bn merger with the US long-distance phone giant, MCI. BT expects several hundred of its 2.3 million private shareholders to attend this morning's gathering, which is expected to last less than an hour.

The latest expansion into the lucrative international business communications market is seen as well-timed and likely to reinforce BT's contention that buying MCI is the only way to provide a genuinely global service to customers. Though the merger is certain to be approved, some analysts continue to have reservations about the price BT is paying and the potential commercial benefits.

The deal still needs approval from the European Commission, likely to be little more than a formality, and the US telephones watchdog, the Federal Communications Commission (FCC). The FCC has made clear it will approve the merger only if BT and MCI can show that the UK phone market is as free as the market in the US.

The deal with Portugal Telecom involves BT taking a 1 per cent stake in the company for pounds 45m when the third phase of its privatisation takes place later this year. MCI will take a stake of 0.5 per cent.

Portugal Telecom will become the latest distributor of Concert business services, while BT clearly hopes it will lead to a partnership with Telebras, Brazil's leading phones group, with which Portugal Telecom has an existing alliance. BT said the Brazilian telecommunications market was worth $14bn (pounds 8.6bn), accounting for 40 per cent of Latin America's total phones market.

Separately, it emerged that the chairman of Portugal Telecom, Francisco Murteira Nabo, is to hold talks next week with Juan Villalonga, head of Telefonica. The move would potentially bring BT closer to clinching a deal with the Spanish carrier.

Industry sources suggested Telefonica could announce a partnership with Concert within days.