Why BT could lose out in Europe

BT's chief executive Sir Peter Bonfield has ruled out breaking the telco up in a similar fashion to British Gas' carve-up of the 1990s.

Press reports last week suggested that BT might announce a phased break-up as soon as next month in an effort to boost its share price, which has collapsed by 30 per cent over the last three months. The markets will also be paying attention to the vote in the European Parliament on the unbundling of local loops.

The arrival at the company of new finance director Philip Hampton has further fuelled the rumours of a potential break-up. Many analysts believe that hiring the man who was responsible for splitting British Gas in two in his capacity as finance chief could herald a similar situation with BT.

Bonfield said in an interview with The Sunday Times: "Hampton's expertise in the restructuring of British Gas will be useful. But this is a very different industry and a different regulatory point of view."

Merger with AT&T ruled out
He also poured cold water on talk of a merger with US giant AT&T. "The idea that BT and AT&T are going to merge...it's not going to be. It is separating out its business into very different structures to us," he said.

But while last week's media coverage boosted BT's ailing stock price in early trading, the gains have not been sustained.

Since the end of 1999, BT has underperformed on the FTSE All Share index by a massive 48 per cent. The company has also been dogged by reports of boardroom disagreements, the hardest hitting ones reporting a rift between Bonfield and long-standing chairman Sir Iain Vallance.

But analysts, not to mention BT's major corporate customers, believe that the best way forward is for the telco either to merge or be carved up. All the signs so far are that the company will continue to plough its own furrow for the time being, however.

But BT's current doldrums are in stark contrast to the dramatic forward-looking moves of Europe's other telco giants.

A deal is in progress that could significantly alter the balance of power in the European telecoms market, with BT seemingly the most likely to end up the loser.

France Telecom is in detailed takeover talks with Equant, which operates the world's largest data communications network, as part of its plans to boost its Global One business services division.

The deal would see the French telco taking possession of one-third of Equant's stock for about $3.1bn in cash, sources close to the company have revealed. It could then swap Global One shares for a further stake in Equant, ending up with more than 50 per cent of the enlarged company.

The third of Equant that France Telecom wants is currently owned by the Sita Foundation, a group that counts the world's major airlines among its members, but which is looking to end its telecoms investment.

As a result, Didier Delepine, Equant's chief executive, said in an interview in August that Sita planned to further reduce its stake in Equant at an appropriate time.

Sita is a Belgian co-operative and was the original creator of the global network that is widely used for airline reservations.

Under pressure
Equant's shares have lost two-thirds of their value since February, when talks to sell the business to Global Crossing and Deutsche Telekom collapsed, but analysts believe that Equant and Global One would be a good match. For example, they operate in complementary markets, with Global One being stronger in the US and Equant stronger in Europe.

For Equant to become part of a larger company would give it the means to improve its services offerings, while Global One would gain access to new corporate customers such as Ikea and Interpol all over Europe, thereby expanding its reach and helping it to compete better with rivals such as BT and WorldCom.

Although negotiations could still fail, an agreement may be reached before the end of the month. An Equant spokesman said: "We view that as rumour and speculation, and we haven't been commenting on any of the rumours." France Telecom was even less forthcoming, not even offering a "no comment".

Earlier this year, France Telecom took over Global One from co-partners Deutsche Telekom and Sprint for $4.36bn in cash, valuing Global One at about $5.4bn.

The unit, which is not expected to become profitable until 2002, provides phone service and data products such as internet access to companies such as Hewlett Packard and Coca-Cola. France Telecom predicted in July that Global One's sales this year would be $2.2bn.

With such big numbers at stake, BT will be under pressure to come up with some dramatic news of its own before the year is out, say observers.

The company has embarked on an internal review of its structure and is believed to have already identified possible businesses that could be spun off.