LONDON/PHILADELPHIA – AT&T Corp. and British Telecommunications Plc agreed on Tuesday to end their struggling Concert joint venture at a cost of 2,300 jobs and $7 billion in charges after falling telecommunications prices and operational missteps plagued the venture from the start.
The long-awaited decision to scrap Concert, which aimed to give multinational companies a single source for global voice and data services, comes after months of negotiations on how to dismantled a business that burdened its owners with extra costs at a time when telecommunications prices plummeted.
When AT&T and BT first announced plans in July 1998 to form Concert, AT&T's then-president, John Zeglis, said: ``We share the conviction that AT&T and BT can do more together in the 21st century than either could do on their own.... The world is too big to do it alone.''
But by the time Concert formally began in January 2000, huge investments by new operators created a massive surplus in telecoms capacity, triggering a collapse in prices.
``The bottom's just fallen out of the marketplace,'' BT Chief Executive Peter Bonfield said on a conference call. ``We didn't take out costs (from Concert) fast enough.''
Coordination at the venture also failed as Concert's products, services and sales staff often competed with the parent companies as the industry headed into a savage downturn. Losses this year were set to hit $800 million.
``There was always execution issues. I would not suggest that we and BT did everything perfectly. But I think the changes in the marketplace probably had a lot more to do with Concert (failing),'' AT&T Chief Financial Officer Chuck Noski said in a telephone interview.
``I think joint ventures are hard to do. The larger they are the more difficult they are,'' Noski said. In the future, AT&T ''would approach anything of this scale quite cautiously.''
BREAK-UP LEADS TO CHARGES, JOB CUTS
AT&T, the No. 1 U.S. long-distance telephone and cable television company, said it would take charges totaling $5.3 billion as a result of Concert's demise and a related agreement to buy BT's stake in AT&T Canada Inc.
BT said the break-up would lead to a 1.2 billion pound ($1.7 billion) charge, plus a further 200 million pounds to cover its share of dissolution costs. Its shares rose as much as five percent to 350-1/4 pence on relief the Concert ''nightmare'' was finally over, one dealer said. The stock later eased to 326-3/4 pence.
AT&T shares lost 31 cents to $18.89 in midday trading on the New York Stock Exchange.
For BT, the end of Concert marks the final stage in an ambitious restructuring and clears the decks for it to split into separate fixed-line and mobile telephone businesses next month.
AT&T, in the midst of its own restructuring to separate its major divisions, now can devote its attention to weighing offers to buy its cable television business, AT&T Broadband.
``I'm relieved they've drawn a line under it,'' said Iain Brown, head of large UK stocks at Morley Fund Management, one of BT's five largest shareholders. He said the charges were within expectations.
GOING HOME WITH WHAT THEY BROUGHT
BT and AT&T will take back most of the assets they originally contributed to Concert. But there will be no jobs at the parent companies for 2,300 of Concert's 6,300 employees. About 800 to 1,000 of the jobs will be cut in the United Kingdom, with the rest in the United States.
The partners will divide Concert's working capital between them, with BT receiving an additional $400 million to reflect the allocation of businesses to the venture. BT said extra money effectively covered $180 million of annual losses for two years at the parts of Concert it will reclaim.
``If we can reduce the cost of operation, this business should be able to return to profit within two years,'' BT Chief Executive Peter Bonfield during a conference call.
AT&T said the businesses it will reclaim are profitable already and will be a modest benefit to revenues once the deal finally closes next year.
On its own, AT&T will have a presence in more 60 countries, due in large part to its $5 billion acquisition of International Business Machines Corp.'s global communications network in 1999. Still, it aims to expand its global reach by building, buying or bartering for new assets in Europe and Asia.
As part of Concert's demise, AT&T also will take full ownership of a joint venture through which it and BT own stakes in AT&T Canada. The venture, which owned about 30 percent of AT&T Canada, was obligated buy the rest of AT&T Canada's publicly traded shares by June 30, 2003.
AT&T now will assume that obligation and aims to own all of AT&T Canada, which provides long-distance and local telephone service, as well as data and Internet services to businesses in Canada, if allowed by regulators.