# Agreeing to attack
Ross Parsons
As more markets in the Asia-Pacific region shift towards greater liberalisation, major telcos are looking towards strategic partnerships as a means of protecting and expanding their interests. Ross parsons, Managing Director of CIT Publications, a UK-based telecommunications information publisher, reports on alliance developments in the region.
The single most important factor driving the rush to create global telecommunications alliances is fear. As deregulation fever spreads, egged on by pronouncements from the World Trade Organization (WTO), PTOs around the world are feeling increasingly threatened. Taking the attitude that the best from of defence is attack, many major carriers have been targeting revenue opportunities in other markets. However, in order to cut a share for themselves in foreign lands, telcos have found that local connections are vital. The major telecommunications players on the global stage, particularly those trying to enter the still tightly regulated Asia- Pacific markets, find themselves lost without cooperation or alliance deals with local domestic partners. In recent years a series of mergers and joint ventures have sprung up as telcos attempt to assuage their fear of the future.
Local partners
The big three alliances in world telecommunications, AT&T’s World Partners, BT/MCI’s Concert, and the France Telecom /Deutsche Telekom/ Sprint joint venture known as Global One, plus the London-based loner Cable & Wireless, have all chiefly targeted high-spending corporate clients around the world. They know that the key to this market is offering the important multinational clients a single point of contact for installation, service and billing. Thus, the cherished corporate customers do not have to jump through different hoops in each country that they choose to operate in. However, no telco can afford to offer the coverage it needs to reach every customer by itself and so alliances with local operators have become an acceptable way of bridging this gap. In the Asia-Pacific region, where regulatory regimes are more restrictive than in Europe or the US, global players have come to depend much more heavily on local partners.
AT&T, the US- based long-distance giant, admits that it has only a limited network and presence in the Far East and that revenues from the area are low compared with those of its competitors. The company is nevertheless determined to expand its presence in the Asia-Pacific region and, in 1993, it set up WorldPartners for that express purpose.
AT first, WorldPartners Association was 50 percent owned by its US backer, with Japanese international carrier KDD taking a 30 percent stake and Singapore Telecom having a 20 percent interest. The European-based Unisource alliance of PTT Netherlands, Swiss PTT and Telia became an equity member of the Association in 1994, taking a 20 percent holding and reducing the others’ stakes in the process (AT&T now owns 40 percent while KDD has 24 percent and ST 16 percent). As well as its equity partners, AT&T hopes to capitalise on its brand awareness by offering its services, grouped under the WorldSource banner, through a variety of offering its services, grouped under the WorldSource banner, through a variety of WorldPatners members. These include Hong Kong Telecom, Korea Telecom, Telstra, Telecom New Zealand, PT Indosat, Telekom Malaysia, CAT and PLDT. World Partners first appeared in the Asia-Pacific region on 1 April 1994 when it launched the KDD WorldSource VSN in Japan.
While AT&T sees the WorldPartners alliance as the key to unlocking many of the Asian markets, it is also bolstering its reputation as a supplier of mobile services in the region. In August 1995 the US company announced it had teamed up with Indian manufacturer Birla to table a US$560 million bid for three GSM licences in the Indian provinces of Karnataka, Gujarat and Maharashtra. In early 1996 the consortium learned it had been successful in two provinces, Gujarat and Maharashtra.
In Taiwan AT&T has joined forces with a local conglomerate, known as the Far Eastern Group, to bid for a national digital mobile licence. In January 1997 the AT&T backed Far EasTone Telecommunications company was duly awarded one of the two nationwide DCS 1800 licences as well as an additional regional licence for the capital city Taipei. In addition, AT&T holds a 27 percent stake in Hong Kong GSM operator SmarTone, which launched its services in 1993. AT&T’s is also firmly entrenched in the Japanese market where it operates through AT&T Jens Corporation, an alliance of 20 local companies including KDD Fujitsu and Hitachi. Jens offers a range of enhanced services to multinationals in Japan. China, however, remains largely the preserve of AT&T’s demerged equipment supply arm, Lucent, which has two manufacturing joint ventures in the country and a long-term agreement with the Chinese State Planning Commission. However, through close links with its erstwhile sister company, AT&T has hopes of breaking into the Chinese telecommunications services supply market.
Jumping ship
AT&T’s global ambitions certainly took a knock recently when Spanish national PTO Telofonica announced it was jumping ship and pinning its colours to the mast of Concert, the BT/MCI vessel. According to AT&T’s new President and Managing Director, Bob Aquilina, the loss will have little bearing on the WorldPartners alliance. However, to some ears, his reassurances about the AT&T/Unisource tie-up-‘our commitment is unwavering, our confidence is unshaken’-sounds less than convincing.
The AT&T/Unisource venture has had its critics, particularly in Europe, where the French water company CGS candidly stated that a perceived lack of clear managerial direction in the alliance has lead CGE to choose BT as its preferred international telecommunications partner, despite the French utility’s long-standing relationship with AT&T Unisource. The US company now hopes that Italian telecommunications holding outfit STET (now merged with Telecom Italia), a long-time wallflower in the global alliances’ dance, will now take Telefonica’s place and try and plug a gap in AT&T’s European and South American plans.
The loss of Telefonica has lead to speculation that the AT&T-Unisource members may be keen to incorporate a stronger alliance based on equity exchanges. However, with Swiss PTT not due to begin the process of privatisation until the end of 1997, combined with the announcement by the Swedish government that it is in principal opposed to selling off parts of Telia, a share-swap option is not on the cards. Unable to deepen their relationship in any other ways, the Unisource members will add their repective international carrier operations to the venture in order to create a much larger operator.
Global One
Global One, which started life with the benefit of having three large, well-connected and well-resourced telecommunications companies behind it, claims 22 representative offices and 400 staff employed throughout the Asia-Pacific region. This is in addition to the company’s Asian headquarters, which is based in Hong Kong. Despite this Global One does not have the same spread of alliance partners in the region that its two big global rivals have. Many analysts argue that the company will not be able to offer its full portfolio of services until 1998, may lead it to lag behind its longer established rivals in the field.
Sprint and France Telecom have tended to build their global presence largely through the supply of data services of while Deutsche Telekom has made some significant joint ventures in eastern Europe and the Asia-Pacific region. Since 1995 DT has owned a 25 percent slice of PT Statelindo, a GSM mobile operator in Indonesia, which claimed 210,000 customers in January 1997. In addition, in June 1996, DT paid $400 million for 21 percent stake in Technology Resources Industry, the parent company of Malaysian mobile operator Cellular Communications Network Sdn Bdh (Celcom), which boasted 860,000 analogue and digital subscribers at the beginning of this year. The German company’s presence in the market is further enhanced by its indirect 35 percent stake in Philippine mobile operator Isla Communications.
DT’s expanding operations in the region will certainly help Global One develop contacts, but the general perception of the Sprint/France Telecom/Deutsche Telekom alliance is that it has significant ground to make up on its rivals in this region. Furthermore, the prospect of further equity swaps to deepen the relationship between the three parties involved in Global one seems to have been curtailed by the recently elected French socialist government of Lionel Jospin. The French premier has show little desire to get the halted privatisation of France Telecom back on track.
Concert
BT/MCI’s Concert is extending its reach beyond that of trying to win corporate telecommunications business through its own efforts and via local service distribution deals in the Asia-Pacific region. Despite the company’s lack of a regionalally (a weakness that many feel was accentuated by its failure to reach agreement on a takeover price for Hong Kong Telecom’s parent Cable &Wireless) BT is gradually adding basic and mobile telephony interests to its regional portfolio.
The UK operator has recently has recently been expanding its interests in India where it has an alliance with the international carrier Videsh Sanchar Nigam to distribute Concert Packet services. It also has a cellular joint venture with Max India and a business telecommunications tie-up with local company Wipro, Known as Wipro BT. In January of this year the UK PTO bought a 22.5 percent stake in Bharti Cellular, one of the biggest mobile operators in the country for a reported $100 million. Bharti owns GSM licences in the Delhi area.
BT also owns a 25 percent stake in New Zealand carrier Clear Communications and has a distribution deal with PT Indosat in Indonesia and a strategic alliance with Samsung Data in Korea. In August 1996 the British company announced a tie-up with international Telecom Japan to launch Concert’s virtual network service in Japan. In March 1997 BT formed a new joint venture in Japan know as BT Network information Service (NIS) for the distribution of Concert Packet and Concert frame Relay services, but all these would fade into relative insignificance if BT/MCI could pull off a major coup and land the biggest partner of all in the Asia-Pacific region-NTT.
The NTT factor
In April 1997 the Japanese national carrier announced it was to join a Concert-backed consortium bidding for the second basic telephony licence in Singapore. The linking of NTT with BT/MCI sparked a series of rumours that the Japanese giant, recently freed by its own government to start international operations, was at last about to throw in its lot with one of the big three international alliances.
NTT remains the biggest telecommunication company in the world with 1996 annual revenues of $69 billion (7,909 billion Yen) and represents a month-watering target for business strategists at AT&T, Concert and Global One. In January 1997, however, NTT President Junichiro Miyazu seemed to dash any western hopes of romance with NTT when he declared that his company would certainly not be entering into global telecommunications alliance.
Despite this Miyazu stressed that NTT is keenly considering possible alliances in the European telecommunications market and has already been linked with a possible ten percent stake in French operator Cegetel. The fact that BT already has a 25 percent stake in the would-be challenger to France Telecom, this rumour has given futher ‘evidence’ to those who feel that a BT/MCI/NTT alliance is on the cards, despite the brave isolationist words of Junichiro Miyazu.
It is not just NTT’s domestic dominance of the Japanese market that makes it such an attractive proposition. It also holds stakes in several joint venture in the region including 15 percent stake in Smart Communications in the Philippines, a stake in the Mitra Global Telekomunikasi consortium, which is building a regional telephone network in Indonesia, and it also owns a 20 percent stake in Thia Telephone and telecommunications (TT&T), a telecommunications joint venture established in Thailand in 1993. The Japanese carrier is also beavering away determinedly trying to find a way into the Chinese market.
While the debate rages on about whether NTT’s head was merely playing hard to get when he tried to quash any talk of a tie-up with western operators, or whether he really intends to stand by what he said, his company remains the most attractive proposition in the fast-emptying Asia-Pacific telecommunications singles bar.
Problems of finding the right blend
Amid all the hype about the extra global and local clout that such telecommunications alliances bring, it is easy to forget the inherent problems in trying to marry up two or three very different corporate cultures and make sure everyone is pulling in the same direction. As the recent revelations from the soon-to-merge telcos BT and MCI have proved, it is possible to have a supposedly very close working relationship and yet still not be fully aware of exactly what the other company is up to. Here were two companies who had been working hand in glove Since the UK operator purchased a 20 percent stake in its transatlantic cousin in 1994. Yet, in July this year, BT claimed that it Knew nothing about the sudden adjustment downwards of MCI’s profit predictions.
The bombshell that exploded on the BT boardroom table was an announcement from MCI that the US company planned to invest an extra $8oo million over the next two years in its attempt to break into the $100 billion market for local telephony services. The result of this increased expenditure is likely to be a trading loss for MCI of double the $400 million it was predicting. Speaking in the aftermath of the surprise announcement, Peter Bonfield ruefully referred to MCI’s gung-ho decision to ramp up its investment in local loop infrastructure as a ‘typical MCI reaction’. Though he was trying to make light of the US company’s actions, the subtext of his comment was-we would have handled it differently.
While MCI’s aggressive marketing and its proven ability to break into new markets are largely what attracted BT to it in the first place, the truth is that despite the British company’s deserved reputation as one of the shrewdest and nimblest former state operators in Europe, BT skill has some significant changes to make to its bureaucratic structure and thinking before it can match the swiftness of its transatlantic counterpart.
If these two English-speaking companies, who have been working together for over two years, find it hard to successfully mesh their differing corporate goals, then it does not bode well for future decision-making processes if the giant NTT were to become the third member of the Concert party. Yet, the prospect of such a tie-up becomes ever more likely as the fear of competition looms larger for the Japanese carrier.
CIT Publications is the publisher of the Datafile of Asia-Pacific Telecommunications and the Yearbook of Asia-Pacific Telecommunications. Other publications are available which cover the western European markets. For more information, call Ross Parsons on +441392 493 444.
Source: Ross Parsons, Agreeing to Attack, Asian Communications, September 1997, pp. 37-43.