View from City Road: Sprinting towards a Euro-monster

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The Independent Online
Someone once said that forming a partnership with AT&T of the US was a bit like being embraced by a bear; AT&T is incapable of forming a proper business partnership with anyone because, in the end, it always insists on being dominant. Lord Young, chairman of Cable and Wireless, realised almost immediately after opening talks with AT&T about a global allegiance that all the Americans were really after was a toehold in Europe and he rapidly terminated all contact. Now France Telecom and Deutsche Telekom have done the same thing. Instead of the much- mooted global tie-up with AT&T, they have instead clinched a dollars 4.2bn partnership with Sprint, one of AT&T's chief US long-distance rivals.

In so doing, they mirror British Telecom's tie-up with MCI, a similar company to Sprint. That deal is finally expected to receive formal US regulatory approval today. France Telecom and Deutsche Telekom can expect a much rougher ride. The US authorities - supposedly pro-competition - will think long and hard about the lack of liberalisation in France and Germany before giving the new alliance the go-ahead.

France Telecom and Deutsche Telekom are state-owned monopolies. The latter is quite likely to be privatised at some stage, but with the former it is much less certain. More to the point, they operate in countries which have railed against attempts by the European Commission to open up the telecommunications market in Europe. Public voice telephony will not be open to competition until 1998 and there is no hint yet of when newcomers might be able to build their own networks and infrastructure.

By contrast, the British telecommunications market is now open to all comers. Britain's fledgling cable industry is dominated by US money and BT is forced to compete, sometimes on disadvantageous terms, with the best companies the US has to offer.

France Telecom and Deutsche Telekom seem intent only on defending their monopoly positions. They have let it be known that they would rather merge than surrender any ground, creating an anti-competitive Euro-monster of truly gigantic proportions.

Why then should they get access, via Sprint, to markets in the US? It has taken a year for the US authorities to approve the dollars 4.3bn link between BT and MCI, even though the UK telecommunications market is one of the most liberal.

The deal will also, apparently, give France Telecom and Deutsche Telekom seats on the Sprint management board. Even the least jingoistic US politician might raise an eyebrow at rendering any such influence to lumbering foreign state-owned monoliths.

Should the US authorities take leave of their senses and approve the alliance, the three companies will still have to bridge an enormous culture gap. BT, in spite of oozing synergetic noises when it announced the MCI deal, admits that the culture problem has not been such a doddle after all.

If nothing else, however, the Sprint deal does lend credence to BT's vision in forming its allegiance with MCI. All the major telecommunications players are in the same long-term game. The market they are gunning for is corporate telecommunications - private telephone circuits, data and special services, video links and so on. Exciting as it sounds, realistic analysts value this market at a mere dollars 2bn today. Liberalisation around the world might unleash a much larger marketplace, but it will take time.