BT-Infonet; Another global networking deja vu?

Multinational companies have seen them come and go -- Concert, Unisource, Global One and a handful of other global networking ventures. Now a new one is about to be born, following BT Group's agreement on Monday to acquire Infonet Services.

But the question on the minds of many experts is: Will this newly merged global communications company succeed where the others have failed? It's possible, they agree, but BT will have its work cut out.

To briefly recap the deal, BT will pay about US$965 million to acquire El Segundo, California-based Infonet in a move aimed at substantially increasing the U.K. operator's global reach and customer base. The transaction, which is subject to regulatory and stockholder approvals, is expected to be completed in the first half of 2005.

Infonet, for those not familiar with the company, succeeded where other global communication ventures, including BT's Concert venture with AT&T Corp., failed: it survived.

Today, the global service provider boasts operations in 70 countries, points of presence in 180 countries and, equally impressive, a customer base of more than 1,800 large and medium-size companies. Bayer, Nestle and Hitachi are among its big-name customers.

By joining forces, BT and Infonet expect their expanded reach, larger customer base and added networking expertise to give them a competitive edge over rivals, including AT&T Global Network Services, Equant NV (owned by France Telecom) and T-Systems International AG (a unit of Deutsche Telekom). These are good selling points, but the new group could have a difficult time winning new users with lingering memories of failed business relationships.

"After the collapse of WorldCom and KPNQwest, nobody is prepared to put all their business or even a huge amount of it into a single global contract," said Ewan Sutherland, chairman of the International Telecommunications Users Association (INTUG). "They are spreading it around as best they can."

If the collapse of global ventures has been a big bone of contention with multinational companies, it has hardly been the only one. "It's one thing to offer service primarily to banks and insurance companies in big cities," Sutherland said. "It's something completely different to offer service to companies that have factories, warehouses, offices and call centers spread in smaller cities across a country. Local access can lead to huge overheads, which have crippled global networking ventures in the past."

Moreover, Sutherland warned that for the new BT-Infonet venture to succeed, it must develop a strategy for China, where numerous multinationals operate manufacturing facilities and, equally important, a mobile communications strategy. "Mobile communications play a huge role in big companies today," he said. "But this service isn't a core competency of BT."

Some industry analysts are also cautious in their assessment of the deal. "For a start, the merger means less choice for users," said Camille Mendler, an analyst at the London office of The Yankee Group. "For another, BT has been gaining good momentum and an acquisition could slow down the operator. BT has not been good at integrating its acquisitions."

Trying to play down the past, BT Chief Executive Officer Ben Verwaayen referred to the Infonet deal as something different. "This is not a joint venture; this is a very focused acquisition and not old history," he said Monday in a conference call. "We've always said we'd make acquisitions that enhance, not change, our strategy. And Infonet does exactly that."

Like Verwaayen, Julian Hewitt, chief analyst with Ovum, views the acquisition as a positive move for BT. BT's Global Services unit and Infonet lacked adequate scale to operate as a genuinely global network player, he wrote in a research report. Together they could create enough synergies to become one.

But Kate Kerwig, an analyst with Current Analysis, warns that BT will need to press ahead and finish some uncompleted work. The group, she wrote in a research report, has spent significant time and money standardizing its global operations so that customers can buy the same products in each market and be supported by the same service-level agreements and customer care portal. "This unfinished rationalization process will need to continue following the Infonet acquisition, and may now be more complex with another set of services to blend into the mix," she wrote.

The combination of BT's and Infonet's networks should strengthen the U.K. group's presence in the crucial North American and Asia-Pacific markets. BT also agreed to a relationship with KDDI, a major Infonet shareholder, which agreed to sell its stake as part of the acquisition deal. The U.S. service provider's other major shareholders also agreed to sell their stakes. They are the Netherlands' Koninklijke KPN NV, Switzerland's Swisscom, Spain's Telefanica, Australia's Telstra and Sweden-Finland's TeliaSonera.

The link-up with Infonet will also allow BT to offer more value-added services such as network security and multimedia, in addition to core IP-VPN (Internet protocol - virtual private network) and ATM (Asynchronous Transfer Mode) network services.

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More about AT&TBayer AustraliaBT AustralasiaBT GroupDeutsche TelekomEquantFrance TelecomGlobal Network ServicesGlobal OneHitachi AustraliaInfonetInfonet ServicesKDDI AustraliaKPNKPNQwestOvumSwisscomTelstra CorporationT-SystemsUnisourceWorldComYankee Group

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