So this is what we were meant to tell Sid when British Telecom was privatised in 1986. Tell Sid that the telecoms market will go bonkers within little more than a decade. Tell Sid that this will largely be a result of tracker funds pushing telecoms shares up – and then pushing them up further because they’re going up and therefore need to be tracked.
Tell Sid that AT&T will become the globe’s most influential telecoms conglomerate. And, while you’re at it, tell him that AT&T will form a major joint venture with BT and then try to outflank it by bidding for the entire British cable industry. Finally, you might tell Sid to hold on to his BT shares – and any other shares he might have acquired in the telecoms sector – because they will defy all economic logic and, with a few fluctuations along the way, defy gravity as well.
Last week’s 36bn bid by AT&T for MediaOne beggars belief. It was widely described as a “surprise”. Frankly, it would be less of a surprise if Lord Lucan turned out to be Governor of the Bank of England. The sheer scale and ambition of AT&T’s bet goes well beyond potentially shafting its partner, BT, on its home turf. It’s betting its house, its family and the shirt on its back that cable will be the communications delivery mechanism of choice to the UK household into the next century.
That sort of bet, quite simply, takes balls. AT&T makes Murdoch, Hanson and the Barbarians at KKR look like a bunch of tremulous wimps. Forgive the hyperbole, but I’m not sure that I recall such a bold gamble to corner an entire market in my lifetime.
Sure, this isn’t the biggest telecoms bid around. In financial terms, it’s dwarfed by the north-and-south merger of Deutsche and Italia Telecoms, which would create a combined entity worth something approaching 115bn. But the AT&T bid has implications that go far beyond the size of the wedge involved.
When AT&T sold its regional “Bellcos” in the early Eighties, it was barred by the anti-trust authorities from playing any further role in the local-loop business in the US. No problem – it simply started playing away.
In the UK around that time, I remember AT&T topping polls asking British businesses which telecoms operator they would most like to run their accounts. That precious brand value in the UK can’t have gone unnoticed back in the States.
Cable is the millennial equivalent of the local loop for AT&T. It acquired America’s largest cable operator TCI last year and with it a 29.9 per cent stake in Telewest, which co-incidentally has a major cable penetration in the UK. A similar stake in Telewest is held by MediaOne, meaning that AT&T will hold a shade under 60 per cent of Telewest if its bid prevails.
Mobile operator One 2 One is jointly owned by MediaOne and Cable & Wireless. One 2 One is variously valued at between 8bn and 12bn. That, again, is an interest that falls within the scope of AT&T’s proposal.
Enter the bugbear of telecoms companies on both sides of the Atlantic. The regulator that pushed AT&T out of the States to pursue its local-loop ambitions elsewhere is not unlike its British opposite number, Oftel, which saw fit to shackle BT after flotation in order to give Mercury – remember? – a break. That earnings-growth pressure on BT led it to ill-fated forays in the US market, most notably with its play for MCI, which jilted it in favour of WorldCom.
AT&T had much the same motivation in reverse. The question is whether Oftel will be as hard on AT&T as it has been on BT. The seemingly obvious competitive conflict of interest it faces, should its MediaOne bid succeed, will be that it enjoys a long-distance alliance with BT, while being its biggest domestic competitor.
On the face of it, that’s a no-brainer. Oftel will either rule the bid out of court or require of AT&T such disposals as to make the acquisition pointless. And you don’t shell out that sort of money for a few trophies.
But Oftel may have something of a quandary. It has, after all, laboured long to have a properly competitive telecoms market in the UK. Its post-privatisation efforts for Mercury were a farce. Now it needs significant foreign representation in the UK. Cold-shouldering AT&T would hardly be conducive to that aim. The shrewd move, of course, would be to broker some sort of contra-deal with the US anti-trust authorities to enable BT to operate more effectively over there. BA has been trying to barter this sort of trade-off for years. But what has always proved so problematic for airlines could be a paradigm for telecoms.
Maybe I’m a little over-excited by the enormity of this deal. Regulators are less excitable than me. Something more prosaic will probably emerge as a solution. But I do believe that this initiative will thrive or founder in the offices of regulators.
And furthermore that the decisions of regulators will be prescribed by one very important consideration. With MCI WorldCom and AT&T on the rampage, the destiny of the global telecoms market is increasingly in American hands.
George Pitcher is a partner of issue management consultancy Luther Pendragon