If you’ll excuse the awfulness of a pun that I simply can’t resist, there was something ever so slightly phoney about the supposed collapse of merger negotiations between Cable & Wireless and BT a little over a week ago.
Methinks BT has protested too much. While it may have been quite artful to have given the impression that BT has the kind of stature in world markets to which C&W can only aspire, my own feeling is that the value in any such deal would be driven at least as much by BT’s interests as C&W’s.
Fair play to C&W, though. He who takes the initiative calls the tune – and often leaves another party to pay the piper as well. In this instance, C&W went on the record to mention long-standing ‘approaches’ from BT, which had been duly considered and, for the time being, rejected.
Given the absence of senior management direction since the abrupt and somewhat unstylish departures of C&W’s chairman, Lord Young, and chief executive, James Ross, it is to its credit that the issue should have been led by C&W to date, making BT look as if it has ground to make up.
In this respect, it is interesting to observe how matters have developed during the 10 days since the tale emerged. BT, for all its efforts at stature, really looks rather keen to have merger talks put back on the agenda. Some might say that it looks rather more than just keen.
In some quarters, this is ascribed to the personal vision of Sir Iain Vallance, which is not to be underestimated. Vallance would doubtless like to see his still widely undervalued contribution to the corporate development of BT crowned with a merger with his old rivals at C&W.
Tactically, too, a combined BT/C&W would provide Oftel director general Don Cruickshank with rather more to think about than the pricing controls with which he has tormented Vallance and his colleagues of late. Were BT to ‘acquire’ C&W – as Vallance would doubtless like the deal perceived – then it would be required under competition legislation to dispose of Mercury. No problem. But I suspect that, from BT’s point of view, one of the more attractive side-products would be a need for the regulator to revisit price-control policy, if only because the structure of the UK market would suddenly be very different.
I suspect that the UK market for domestic telecoms is only a part of the driving force behind any deal between BT and C&W. And, for all the public posturing of the past 10 days or so, I also suspect that the prospect of such a deal is of considerably greater interest to BT than to C&W. Consequently we should little wonder at the urgency with which BT has privately stressed, since merger talks became public, that it is still very much open for business with C&W.
My own belief is that this has less to do with domestic markets than with international ambitions. BT has played its international hand well but does not enjoy the global spread of C&W’s international federation of businesses.
In particular, BT does not have the presence it yearns for in South-east Asia and the Pacific rim. There, C&W’s domination of markets borders on control, with its 57.5 per cent stake in Hongkong Telecom, which is another regulatory hurdle that would need to be cleared in the event of a merger with BT. Similarly, BT and C&W could face regulatory challenges in Germany, where they individually form significant roles in competing consortia for the forthcoming privatised market.
But these are simply geographical considerations and do not do justice to the potential clout of a joint BT/C&W entity. In market development terms, I would draw attention to the prospects of fixed/mobile networks.
Fixed/mobile is where much of the action is expected to be. It would give individuals a single phone number and the means to access the network from any mobile or fixed phone. Significantly, C&W is set to win licences to develop fixed/mobile networks in South-east Asia and throughout Europe. Its experience on a global scale has put it in the vanguard of such developments. Bluntly, BT wants access to these markets.
There will be plenty of speculation about BT’s geographical interests in the Far East as merger talks progress over coming weeks. But I imagine the fixed/mobile market will attract scant attention, if only because BT will be understandably reluctant to draw undue attention to its competitive weakness in this area. Nor will it be particularly anxious to draw the attentions of the likes of AT&T to this market. But fixed/mobile is nonetheless a driving force behind BT’s intentions for C&W and a market that we will doubtless hear a great deal more about in the coming year.
Separately, it is perhaps worth noting how the mooted BT deal has swung perceptions of C&W around. The international federation of companies that constitutes C&W has widely been cited as a bear factor over the past couple of years. Miraculously, it would appear that it is precisely internationalisation that is firing BT’s lust for the company.