AT&T, BT . . . and IBM: red flag to regulators?

Amid the hubbub of Tuesday's news that AT&T plans to buy IBM's global network for $US5 billion, one silent partner that could greatly affect the deal lurked quietly behind the scenes -- British Telecommunications.

With a joint venture worth $10 billion in the works, BT and AT&T are closely tied at the hip. The idea of the venture is to offer a range of data and communication services to multinational companies around the globe -- the same sort of customers AT&T will gain in its planned purchase of IBM's Global Network, in the hope that it will be able to cater to both their data and voice needs.

The whole package could be a red flag to regulators, which could see a BT-AT&T-IBM link-up as going one step too far in cornering a large part of the corporate data communications market, several observers said yesterday.

Just last week, the European Commission announced it would launch a full-scale inquiry into the planned AT&T-BT venture, citing concerns about anti-competitive behaviour. Cable & Wireless -- a British telco that recently lifted a regulatory roadblock for the WorldCom-MCI Communications merger by acquiring MCI's Internet backbone -- said it had filed documents to the Commission regarding its concerns about the AT&T-BT alliance. The concern that Cable & Wireless has is that together BT and AT&T will corner too much of the market for communication services to multinational companies, a spokesman said.

How AT&T and BT will meld the IBM dial-up and leased-line network into their offerings to corporate customers is unclear. A BT spokesman said yesterday that it was too early to tell what effect the IBM acquisition would have on the AT&T-BT relationship.

"It is the early days at the moment," the spokesman said. The global venture will be aimed at multinational customers, so it seems apparent that the IBM network would somehow become part of these offerings, he said.

However by adding IBM's data network into their service offerings for corporate customers, AT&T and BT could come under even more scrutiny from regulators in Europe, said Mitul Mehta, an analyst with Frost & Sullivan in London. While IBM's data network is essentially a different animal than either BT or AT&T's telecom networks, the idea is to target the users of IBM's network with IP-based, converged voice and data services down the road. If regulators think that BT-AT&T, together with IBM's Global Network customer base, constitutes too large a percentage of the corporate communication services market, they could ask the venture to divest some of its businesses, he said.

"With the recent probes announced by European regulators, there will definitely be some demand for counterbalance," Mehta said, now that IBM's network has been added to the picture. "AT&T-BT won't be able to swallow it (IBM's network) whole."

IBM has about 10 per cent of the global managed data market, slightly less in Europe, said James Bennett, an analyst at CIT Research in London. Coupling IBM's reach in the data market with BT's European presence in the same field, they could corner 20 per cent of the market worldwide, even without AT&T's participation.

"The EC might have something to say about that," Bennett said. "I would guess they would find this a problem."

If the commission asks anyone to get rid of a part of its business, it is going to be AT&T, agreed both Bennett and Mehta. The company has a larger global reach than BT, so regulators might ask AT&T to get rid of some of its customers in the data communications market in order to balance out their overall market share in the segment, they said.

CIT's Bennett went as far as to suggest that AT&T's bid for IBM's data customers and network could be a fall-back measure if its alliance with BT gets turned down by regulators. Days after an EU probe into the alliance was announced, AT&T announced the acquisition of the IBM infrastructure. "The timing isn't very convivial to the passing of the BT deal," he said.

However, another analyst was more positive about the AT&T-BT link-up, saying that IBM's data network shouldn't pose a problem to regulators here in Europe.

"What the IBM infrastructure would do is give AT&T broader reach globally, but it wouldn't greatly change the competitive market in Europe," said Robin Bosworth, an analyst at Schema in London. While IBM's network will allow AT&T and BT to expand in Europe, it is more about expanding worldwide, where neither BT nor AT&T have a very large portion of the corporate data services market.

Even in Europe, BT's involvement in the data services market isn't dominant by any means, and even less so for AT&T, he pointed out. Adding IBM's data network customers to the mix won't increase their combined market share to dangerously anti-competitive levels, he said.

In fact, Bosworth said, AT&T's move to acquire a data network is just a harbinger of things to come. As telcos attempt to increase their credibility in the data services market, they will have to acquire or partner with established players.

"We are going to see a lot more telcos merging with data network providers," he said.