British Telecom and AT&T both will recover decently from their ill-timed Anglo-American attempt to bring global services to multinationals, analysts say.
In fact, the dissolution of the Concert joint venture – announced Tuesday - will help both long-distance telecoms focus on their core businesses, letting them speed deployment of broadband to their respective continents.
The divorce will cost 2,300 jobs, and write-offs totaling $7 billion - $5.3 billion of it borne by AT&T.
Still, the two telecoms have their original customers to fall back on, something that their aggressive but hard-pressed competitors in the global market - Equant, Global Crossing, 360networks and Level 3 Communications – no doubt envy.
The two-year-old Concert venture was born when BT had designs on being a global operator, said Michael Cansfield, principal consultant with London-based Ovum market research firm. "BT now wants to concentrate on Europe, and they no longer can afford to pay for Concerts losses.
Under the Concert venture, AT&T terminated some traffic in Europe and shared some of the cost with BT. A long-distance company saves money if the telephone call its customer is making both originates and terminates within the network, so Concert held the promise of trimming expenses.
Conceptually, it was the right thing to do, said Blaik Kirby, vice president with Adventis telecommunications consulting firm. "But the voice market internationally got ugly.
The pipe dream that demand would never slacken turned into a nightmare as competitors spent billions of dollars building out networks, exacerbating a glut in capacity that depressed prices and contributed to a recession in telecom.
BT and AT&T also relied on older technologies, which meant they didnt spend nearly as much money as several of their competitors did on capacity. But that probably prompted some of its customers to defect to competitors, most of which havent been any more successful at making money on multinational corporations. AT&T and BT hoped that the partnership would increase traffic, but demand wasnt what they hoped – on either the wholesale or retail end.
Each of the parents might have had higher expectations for what Concert would deliver, Kirby said. The cost of integrating the two networks also proved a thorn.
The Concert business plan may have been fatally flawed anyway, because most of the customers were based in the United States, which meant most of the calls originated there. AT&T was paying out a lot more money to overseas operators to deliver calls on its customers behalf than it was getting in return. "That was a fundamental problem, Cansfield said.
British Telecoms investors are relieved its out of the venture, which reportedly will lose $800 million this year. Its stock price got a boost on Tuesday.
BTs rivals are promoting Digital Subscriber Lines far more now than in the past, Cansfield said. "Stopping losses in Concert will allow BT to concentrate on its broadband business, he said.
AT&T still is the number one provider to U.S. multinationals, "and will remain that way for a long time, Kirby said. "No one is going to switch providers just because Concert isnt a part of AT&T anymore. It still has that reach and global presence, and still can become the dominant global carrier.
As part of the dissolution agreement, AT&T will pay $1.8 billion for BTs stake in AT&T Canada.
Analysts said its difficult to find a successful joint venture in telecommunications, because disputes over governance, management and meeting each parents goals inevitably muck up the best intentions.
In a perfect world, where everyone plays well in the sandbox, joint ventures make sense, Kirby said. "But realistically in the competitive market, it doesnt work."