European firms plan dollars 4bn stake in US telecoms giant: French and German links with Sprint face regulatory hurdles

THREE of the world's leading telecommunications groups took another step towards global consolidation yesterday with the state telephone utilities of France and Germany announcing plans to take a dollars 4.2bn stake in Sprint, the US long-distance carrier.

The complex, two-stage deal, which is likely to face stiff opposition from US regulators, creates a direct rival to BT's dollars 4.3bn global link-up with MCI and to AT&T, which has struck alliances with national telecoms groups in Asia. It also complicates a proposed joint venture involving Sprint and Electronic Data Systems, the computer services giant, whose own merger plans collapsed two weeks ago.

Yesterday's deal would give France Telecom and Deutsche Telekom a 20 per cent stake in Sprint and a proportionate number of seats of the board of the third-ranking US long-distance company. The investment by the two companies, which are already in the process of integrating their international data networks, would come in two stages, with the first dollars 2bn tranche at the closing of the deal about a year from now.

The three partners expressed optimism about the deal's chances of winning approval from regulators, notably in the US, where approval for BT's 20 per cent stake in MCI has been pending for almost a year. BT is expected to announce it has won approval today. BT's plan to buy a 20 per cent stake in MCI, announced last year, marks the biggest acquisition in its history.

BT and MCI are also forming a joint venture company to offer private telecommunications services to companies around the world. Before the alliance BT had applied to become an operator in the US in its own right but met opposition from companies including AT&T.

The Sprint deal calls for the partners to combine their operations within the limits authorised by regulations, adding that existing international agreements will be respected. The pact focuses on services to big multinational business, international calling card services for travellers and operator-to-operator services, all of which are contested markets.

Sprint's chief executive, William Esry, said the transatlantic deal did not preclude talks with EDS about providing corporate clients with computer as well as communications services. Both parties still believed in the strategic value of an alliance short of the merger planned last month.

EDS announced a dollars 3.2bn deal of its own yesterday, confirming it had agreed to provide Xerox with its computer needs for the next decade.