Problem
Telecom Ventures Unite the World
The world of telecommunications is changing. The era of global e-commerce is here, driven by new technologies such as broadband and wireless Internet access that make possible video telephone connections and high-speed data transmission. Annual worldwide revenues for telecommunications services total $600 billion, with international companies accounting for 20 percent of the business.
Market opportunities are opening around the world as post, telephone, and telegraph (PTT) monopolies are undergoing privatization. Since 1998, telecom deregulation has been taking place in earnest in Europe. Meanwhile, governments in developing countries are boosting investments in infrastructure improvements to increase the number of available telephone lines. The demand for telephone service is growing at a sharp pace; international telephone-call volume more than doubled over a recent six-year period. The net result of these changes is the globalization of the telecommunications industry. As William Donovan, a vice president at Sea-Land Service, said recently, "I don't want to have to talk to a bunch of different PTTs around the world. I don't want to have to go to one carrier in one country and a second in another just because it doesn't have a presence there."
Several alliances and joint venture partnerships formed between companies hoping to capitalize on the changed market and business environment. France Telecom, Deutsche Telekom, and Sprint created Global One to bring international telecommunications services to multinational companies. As part of the deal, Sprint sold 10 percent of its stock to each of its French and German partners. One hurdle for the company was how to integrate the three partners' communication networks into a unified whole. Also, start-up costs were high, and the need to communicate in three different languages created some friction among personnel. Early on, lengthy negotiations were required to reach agreement about the value each partner brought to the venture. A former Global One executive noted, "There is no trust among the partners." Other problems included equipment and billing incompatibilities resulting from distribution agreements with telephone monopolies in individual countries. And then there were the financial losses that prompted Sprint chairman William T. Esrey to install Sprint executive Gary Forsee as CEO and president of Global One.
AT&T also depends on various partnership strategies as entry modes. WorldPartners began as an alliance of AT&T, Kokusai Denshin Denwa (KDD) of Japan, and Telecom of Singapore. The goal was to provide improved telecommunications services for companies conducting business globally. Today, WorldPartners is composed of 10 companies, including Telecom New Zealand, Telestra (Australia), Hong Kong Telecom, and Unisource.
Unisource is itself a joint venture that originally included Sweden's Telia AB, Swiss Telecom PTT, and PTT Telecom Netherlands. Later, Telefonica de España became an equal equity partner in Unisource. Unisource and AT&T then agreed to form a 60-40 joint venture known as AT&T-Unisource Communications to offer voice, data, and messaging services to businesses with European operations. AT&T would have preferred to form a joint venture with the French or German telephone companies. Yet European regulators, concerned about AT&T's strong brand name and enormous size, refused to approve such a deal.
There was strong logic for the deal. AT&T-Unisource CEO James Cosgrove explained from headquarters near Amsterdam in Hoofddorp that to be competitive in Europe a telecom company needs to have a base there and offer global solutions. Despite the fact that there are five corporate parents, a sense of equality and congeniality has developed. CEO Cosgrove explained that after working together for two years, the parent companies realized that their own success is tied to the success of the shared venture. The presence of Telefonica de España in the alliance was especially significant for AT&T because of the Spanish company's strong influence in Latin America. Unfortunately, the alliance was weakened when Telefonica decided to ally itself with Concert Communications. To fill the void, AT&T and Italy's Stet announced a new alliance that would expand communication services to Latin America as well as Europe.
The third major telecommunications alliance, Concert Communications, was formed when British Telecommunications PLC bought a 20-percent stake in MCI Communications. Again, the goal of the alliance was to offer global voice and data network services to global corporations.
Thinking Globally
Question I: What strengths did AT&T bring to its joint venture with Unisource?
Question II: Can you think of any potential complications that could have arisen in the AT&T-Unisource joint venture?
Question III: Assess the formation of Global One, Unisource, and other partnerships in this case. What strategic factors might have influenced the entry mode choices that these firms made?