There is no such thing as a joint venture to be found anywhere other than in a successful marriage between two individuals. Beyond such unions made in heaven, there is only ever going to be one dominant partner. Where one partner dominates, it’s a takeover, not a merger – and to pretend otherwise is as dangerous in business as it is in marriage.
Shareholders who approved the 50/50 joint venture between EMI and Time Warner a couple of weeks ago might want to dwell on that thought. Indeed, it looks as though a number of them did dwell on it before the vote – there were some bizarre stories abroad of an alternative bid for EMI emerging, involving Spanish telecoms giant Telefonica teaming up with a consortium of unspecified Far-Eastern investors.
The idea that a company the size of Telefonica should need to team up with anyone if it wants to launch a takeover bid, even for the crown jewels of UK music business, seems faintly silly. But, then again, the idea of telecoms companies teaming up with anyone is beginning to look a bit silly.
The latest telecoms joint venture to show the strain is Concert, the global co-operation between BT and AT&T, which formally launched its own management operations at the start of this year. The obvious issue here appears to be that, while you can create a joint-venture vehicle, you can’t necessarily persuade its constituent partners to venture jointly into it.
There are, apparently, competitive areas in which all the commercial instincts of executives at BT and AT&T are, not unnaturally, to go up against one another. In other words, when it comes to working together, the two companies will do so only in those areas of the joint venture that aren’t crucial to its success. Where there are competitive pressures, BT and AT&T will intuitively protect their own backyards. One consultant to the joint venture was quoted last week as saying: “Concert is suffering from parental abuse.”
A fairer way of putting it might be that the children aren’t sharing their toys. This kind of behaviour, as any parent knows, is far from uncommon. Global One, a joint venture between Sprint, France Telecom and Deutsche Telekom, collapsed last year amid recriminations over the lack of a common management accord.
The precedent of Global One must loom large over BT chief executive Sir Peter Bonfield. BT has taken a hammering from institutional shareholders of late. But Bonfield is nothing if not a nettle-grasper, as his earlier commercial incarnation at computer concern ICL demonstrated. He has embarked on a dramatic reconstruction of BT, creating four discrete businesses for what we might call the new-millennial telecoms opportunities – BT Wireless (mobiles), BT OpenWorld (Internet), Ignite (B2B) and Yell (online directories).
Meanwhile, he has split the core UK network into two separately identifiable halves – retail and wholesale. And then there is Concert. But you can’t say it like a throwaway line at the end. There really is Concert and that is where the whole future of BT may reside. The future of the telecoms business is about global domination, and BT has elected to pursue its own attempts at domination through mergers and joint ventures.
When BT tried three years ago to merge with MCI of the US, it persuaded UK Government ministers to drop their golden-share veto in order to let this happen. It was not to be and MCI pursued its global destiny with WorldCom, but it demonstrated that BT considers its global aspirations can only be delivered through mergers of equals, with managements working co-operatively.
It may have little choice in the matter. Competition authorities and anti-trust regulators have consistently coshed BT into a situation where it has to cosy up to its telecoms peer group, rather than simply buy them.
Deutsche Telekom has been – and has been allowed to be – altogether more acquisitive. And, for his part, Bernie Ebbers, the mildly eccentric chief executive of MCI WorldCom, is on record as saying that “alliances are for wimps”.
The two problems with this paraphrase of Gordon Gekko are that good properties in telecoms are still vastly expensive, even given recent corrections, and, secondly, when one moves close to a big, sexy acquisition, as likely as not the regulator steps between predator and prey. MCI WorldCom’s abortive play for Sprint is a recent example of this frustration.
In any event, consolidation in the telecoms industries is a narrowing market. Fewer opportunities for the majors to acquire will push the prices of targets even higher. And that’s before you catch the eye of the competition authorities.
So while the situation may be far from perfect, telecoms giants will have to learn to live with each other, in joint ventures such as Concert, if they are to play the global game properly. Acquisitiveness, in the style of Deutsche Telekom or MCI WorldCom, may have its attractions of control, but ultimately joint ventures may be the least impractical option. Even successful marriages have to be worked at.
George Pitcher is a partner of issue management consultancy Luther Pendragon