Multinational companies have seen global networking
ventures come and go. Now a new one is about to be born, following
BT Group's agreement to acquire Infonet Services.
But the question on the minds of many experts is: Will this
newly merged global communications company succeed where the others
have failed? It's possible, they agree, but BT will have its work
cut out.
To briefly recap the deal, BT will pay about $965m (£520m) to
acquire Infonet in a move aimed at substantially increasing the UK
operator's global reach and customer base.
The transaction, which is subject to regulatory and stockholder
approvals, is expected to be completed in the first half of
2005.
Infonet succeeded where other global communication ventures
failed: it survived. Today, the global service provider boasts
operations in 70 countries, points of presence in 180 countries and
a customer base of more than 1,800 large and medium-size companies.
Bayer, Nestlé and Hitachi are among its big-name customers.
By joining forces, BT and Infonet expect their expanded reach,
larger customer base and added networking expertise to give them a
competitive edge over rivals, including AT&T Global Network
Services, Equant and T-Systems International.
These are good selling points, but the new group could have a
difficult time winning new users who have memories of failed
business relationships.
"After the collapse of WorldCom and KPNQwest, nobody is prepared
to put all their business or even a huge amount of it into a single
global contract," said Ewan Sutherland, chairman of the
International Telecommunications Users Association. "They are
spreading it around as best they can."
If the collapse of global ventures has been a bone of contention
with multinational companies, it has hardly been the only one.
"It's one thing to offer service primarily to banks and
insurance companies in big cities," Sutherland said. "It's
something completely different to offer service to companies that
have factories, warehouses, offices and call centres spread in
smaller cities across a country.
"Local access can lead to huge overheads, which have crippled
global networking ventures in the past."
Moreover, Sutherland warned that for the new BT-Infonet venture
to succeed, it must develop a strategy for China, where numerous
multinationals operate manufacturing facilities and, equally
important, a mobile communications strategy.
Some industry analysts are also cautious in their assessment of
the deal. "For a start, the merger means less choice for users,"
said Camille Mendler, an analyst at The Yankee Group. "For another,
BT has been gaining good momentum and an acquisition could slow
down the operator. BT has not been good at integrating its
acquisitions."
BT chief executive officer Ben Verwaayen referred to the Infonet
deal as something different. "This is not a joint venture; this is
a very focused acquisition and not old history," he said. "We've
always said we'd make acquisitions that enhance, not change, our
strategy. And Infonet does exactly that."
Julian Hewitt, chief analyst with Ovum, views the acquisition as
a positive move for BT. Its Global Services unit and Infonet lacked
adequate scale to operate as a genuinely global network player, he
said. Together they could create enough synergies to become
one.
But Kate Kerwig, an analyst with Current Analysis, warns that BT
will need to finish some uncompleted work. The group, she said, has
spent significant time and money standardising its global
operations so that customers can buy the same products in each
market and be supported by the same service-level agreements and
customer care portal.
"This unfinished rationalisation process will need to continue
following the Infonet acquisition, and may now be more complex with
another set of services to blend into the mix," she said.
The combination of BT's and Infonet's networks should strengthen
the UK group's presence in the crucial North American and
Asia-Pacific markets. BT also agreed to a relationship with KDDI, a
major Infonet shareholder, which agreed to sell its stake as part
of the acquisition deal.
The US service provider's other major shareholders also agreed
to sell their stakes. They are the Koninklijke KPN, Swisscom,
Telefónica, Telstra and TeliaSonera.
The link-up with Infonet will also allow BT to offer more
value-added services such as network security and multimedia, in
addition to core IP virtual private network and asynchronous
transfer mode network services.
John Blau writes for IDG News Service