British firm to buy 20% stake in MCI Phone companies plan global network for businesses

June 03, 1993|By New York Times News Service

WASHINGTON -- In the biggest foray yet by a foreign communications company into the U.S. long distance business, British Telecommunications PLC announced yesterday that it would buy one-fifth of MCI Communications Corp. for $4.3 billion and form an alliance to provide global networks for multinational corporations.

The pact reflects the urgency with which the world's biggest telephone companies are rearranging themselves into alliances so they can better compete for corporate customers.

The deal is also a direct challenge to American Telephone & Telegraph Co., which has been successfully pushing into foreign markets and had been fighting previous attempts by British Telecom to expand its business in the United States.

Indeed, the alliance is likely to intensify a looming trade battle between the United States and Britain over regulatory barriers that hinder access by foreign companies to each nation's domestic telephone market.

At stake is a fast-growing, $10 billion market in private networks for large corporations that want telephone and computer links among their offices on different continents. These customers increasingly want to buy their services in a single package from a single vendor, rather than dealing with an international patchwork of private and government-run telecommunications carriers.

Analysts predicted that more alliances would be struck in the industry as telecommunications companies around the world try make international calling and data transfer as easy and relatively inexpensive as placing a long distance phone call within the United States. For MCI, the nation's second-largest long distance carrier, with annual sales of more than $10 billion, the new alliance would give the company the powerful partner it has desperately needed to compete on the global stage.

Cash for MCI

It also gives Washington-based MCI a huge stockpile of cash to pursue its own acquisitions, and company officials made it clear that they were scouting for deals in cable television and wireless phone services and with companies that operate local fiber-optic networks.

For British Telecom, the alliance means much greater access to the American market.

With $20 billion in annual revenue, the company has been trying to provide a full array of communications services to American multinational corporations. Earlier this year, it petitioned the Federal Communications Commission for permission to operate with greater freedom in the United States.

AT&T is fighting that petition, while simultaneously trying to break down regulatory barriers that foreign companies face in Britain. The new alliance appears to render the FCC petition moot, because MCI will now effectively become the American marketing arm for British Telecom.

"This alliance gives us the best opportunity MCI has ever had to bring its global and domestic strategies to fruition," said Bert C. Roberts Jr., chairman and chief executive of MCI.

Under the pact, the two companies will become intertwined on )) both a financial and operational basis. British Telecom will pay an average of $64 a share for newly issued MCI stock that will give it 20 percent of the American company.

That is a 21 percent premium over MCI's stock price before the deal was announced. Perhaps because Wall Street had been XTC expecting a deal by MCI much like this one, the company's stock increased only modestly yesterday.

After jumping more than $4 a share in early trading, MCI stock receded later but still closed up $1.625, to $54.375, on the New York Stock Exchange. British Telecom's American depository receipts closed on the NYSE at $65.125, down $1.125.

In addition, the two companies plan to invest $1 billion in a joint venture to market international business services. British Telecom will own 75 percent of the venture, which has yet to be named. MCI will own the rest.

For practical purposes, the two companies plan to carve up the distribution of these international long distance services. MCI will sell services in the Americas and the Caribbean; British Telecom will do so for Europe, Asia and the Pacific Rim.

But the two companies will market international services under common brand names yet to be chosen, use common technical standards to link their systems and coordinate the activities of their sales teams.

MCI executives acknowledged yesterday that a third company, probably from a Pacific Rim country, will join the alliance with British Telecom to complete the global reach of their new service.

MCI's residential customers in the United States are unlikely to be affected by the deal, which is aimed at international business traffic. In addition, U.S. law bars a foreign company from buying more than 25 percent of an American long distance carrier, and MCI officials made it clear that they want their company to remain independent.

Nevertheless, British Telecom will be given three positions on MCI's board, and Mr. Roberts of MCI will be named to British Telecom's board.

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