If London-based Cable & Wireless plc and British Telecommunications plc merge, the new enterprise could descend upon an auspicious Asian market and create a shake up among globally-footed wireless giants.
“This whole merger move is based on a wireless view of the world, because East Asia is going to be a wireless telephone marketplace,” said David Roddy, chief telecommunications economist at Deloitte & Touche Consulting Group Inc. in Atlanta.
A union of the two would provide BT a “beachhead for an assault on East Asia,” said Roddy, because Cable & Wireless’ is the majority owner of Hong Kong Telecom.
The economy is growing between 8 percent and 10 percent annually in an area that includes China, Indonesia, India and Korea, said Roddy. Meanwhile, communication is poor. Roddy said only a few wireline phones exist per 100 people in East Asia, and construction of landline networks is expensive. Wireless networks are “desperately needed to support their economic growth and the 2.5 billion people there,” said Roddy, and it is “cheaper to build wireless local loop infrastructure.” said Roddy.
“BT has lots of cash and Cable & Wireless needs cash,” said Roddy. Joining forces would allow BT “to diversify out of the United Kingdom, which is not the greatest of growth markets.”
Cable & Wireless said it is valued at nearly $18 billion. BT is reportedly valued at about $36 billion.
Worldwide, a combined BT/Cable & Wireless could thrust the companies into competition with three major global alliances to which most telecom companies have aligned themselves, said Roddy. Heading these groups are AT&T Corp.; MCI Communications Corp.; and France Telecom, Deutsche Telekom AG and Sprint Corp. “If it [a merger] does happen it would be the first non-U.S. carrier saying we want to be a global carrier,” said Roddy.
BT is the fourth largest telephone network operator in the world and main provider of local and long-distance service in the United Kingdom. The company also provides telephone equipment. Less than a year ago, BT bought a 20 percent share in MCI.
In addition to Cable & Wireless’ strong international presence, the company owns 80 percent of U.K. telephone operator Mercury Communications and 50 percent of its mobile subsidiary Mercury One-2-One. In the event of a merger, antitrust laws would require Cable & Wireless to divest Mercury, as it competes directly with BT, explained Roddy. He said Deutsche Telekom and AT&T Corp. have expressed interest in purchasing Mercury. Nynex Corp. also has been cited as an interested party.
Other regulatory hoops to jump through before merging include Cable & Wireless selling its shares in two east coast local and long-distance service providers that operate where MCI wants to be local, said Roddy. “If they’re serious about the deal and the governments are cooperative, they can go through with the deal,” Roddy said, as well as approval from stockholders.
Moody’s Investor Service Ltd. said announcement of a merger would likely prompt a review of both companies’ long-term debt ratings. Also such a deal would “add pressure to BT’s Aaa Ratings, which already have a negative outlook,” reported Moody’s London firm.
