AT&T Meets European Telephone Giants

A linkup with the French and German companies would easily upstage the MCI-British Telecommunications alliance

THE alliance now being contemplated between AT&T and two of Europe's main telephone companies will send tremors through the telecommunications industry.

How big those tremors are remains to be seen. The deal may rattle a few competitors - or it may shake the world.

Analysts seem inclined to take the minimalist view. The telephone giants are building on the partnerships they already have, they say. These are continent-spanning relationships aimed at serving their largest clients - the multinational corporations.

France Telecom and its German counterpart, Deutsche Telekom, for example, are already partners in a joint-venture called Eunetcom. If a corporation wants to set up branch offices in France and Germany, it does not have to deal with separate telephone companies. Eunetcom can handle the entire deal.

One company has declared its intent to sign up. IBM Europe is looking at Eunetcom to link up 40 sites in six European countries.

This kind of alliance is the vogue for telecommunications companies.

Earlier this year, AT&T fashioned a similar service with KDD of Japan and Singapore Telecom. In a $4.3-billion deal, British Telecommunications (BT) also this year agreed to acquire one-fifth of MCI Communications to do much the same thing.

An AT&T linkup with the French and German telephone monopolies would easily upstage the BT-MCI deal. AT&T Chairman Robert Allen confirmed Monday that his company was holding talks with the French and German concerns. But the deal is only exciting because of its size, not its direction. The potential alliance between France Telecom and Deutsche Telekom is more intriguing.

According to press reports last week, the two companies are talking about merging all but their basic voice operations. Together, the two companies would create a force to be reckoned with not only in Europe but the world.

``Everyone's talking with everyone,'' says a France Telecom spokesman. ``It is evident that France Telecom, like the other European companies, is looking for partners in other parts of the world. [But] there's nothing made definite. It's much, much too premature.''

``Of course, there are permanent talks and permanent ideas on how this cooperation can be intensified,'' adds Klaus Czerwinski, a press spokesman for Deutsche Telekom. But ``we prefer not to comment on any speculations.''

Although a potential deal is not related to the privatization of both state-owned companies, one may help the other.

Last week, Deutsche Telekom achieved what appears to be a breakthrough in its move to become a private company. The German government and the opposition Social Democrats agreed on the outlines of a deal to sell one-fourth of the company's shares in 1996 and another 24 percent in 1998. The company needs a political settlement because changing its status requires changing Germany's constitution. And no one party has the votes to achieve that alone. The bill is expected to go before the German Parliament before year-end.

``It's a positive thing that there is another step and that they have, at least in this group, the will to keep on with privatization,'' Mr. Czerwinski says. But the actual details of the deal have not been made public yet, he points out, and previous political deals regarding the company's privatization have foundered in Parliament. The speed with which the German company and France Telecom can be privatized will have an effect on the kind of partnership they are likely to achieve.

One possibility is that the companies will decide to provide integrated services not just for the largest business customers, as Eunetcom does, but also for smaller businesses. A French-German entity could provide services as mundane as transmitting data at high speeds over national boundaries.

How much these companies actually can do will depend on national and European Community regulators. The more grandiose the plan, the more difficult it will be to persuade them to go along. Perhaps that is why analysts are cautious about proclaiming a new era in telecommunications.

``What you're seeing more is alliances and groupings of telephone operators who are cooperating together on certain activities,'' says Cathy Dobson, telecommunications analyst with DB Research, the equity-research subsidiary of Deutsche Bank. But ``we're a long way from out-and-out mergers of AT&T, France Telecom, and Deutsche Telekom, for example.''

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