Deutsche Telekom and France Telecom are Europe's two largest phone companies. So when they announced plans last June to buy a 20% stake in Sprint Corp., the No.3 U.S. long-distance carrier, industry observers predicted a $78.1 billion powerhouse-in-the-making that could match AT&T or British Telecommunications PLC. If it ever gets off the ground, that is.
U.S. and European regulators say they are unlikely to endorse the deal unless both France and Germany open their telecom markets to more competition ahead of the European Union's 1998 deadline. But French politicians and their German counterparts fret about the sharp pain that such competition would inflict on their inefficient state monopolies. Those same monopolies, though, are losing ground daily to unregulated carriers.
"LOSING TIME." Deutsche Telekom and France Telecom have already stumbled badly with their first alliance, Eunetcom, which was formed in 1993 to offer network services to multinationals. Infighting and the lack of a clear strategy made Eunetcom ineffectual, analysts say. The two carriers announced a broader venture in December, 1993: Atlas, meant to subsume Eunetcom and integrate both carriers' business services. But France Telecom and Deutsche Telekom have yet to win EU approval for Atlas. "We are losing time and business," admits a France Telecom executive. "Every day, I lose customers to BT."
The Sprint alliance, if it goes through, could turn that around. Sprint already has global data and electronic-mail networks in place. Those would be combined with Eunetcom's high-speed network that links up hubs throughout the U.S. and Europe. Sprint, for its part, is confident of success, however. "The issue is not whether the deal will go forward. The issue is what conditions will be placed on it," says John R. Hoffman, Sprint's senior vice-president for external affairs. He thinks that, in the end, the EU will say yes--but it might limit how much long-distance traffic the two European monopolies are permitted to funnel to Sprint.
But government approvals alone won't guarantee success. The alliance's organization is so complex that some industry observers wonder how it will ever work. Each carrier will be the sole provider in its home market. Together, the three will run a regional group for Western and Eastern Europe, while the European partners will service the rest of the world.
While those details are being worked out, France Telecom and Deutsche Telekom continue to pressure their regulators to delay opening markets. Maybe they should drop the effort. The sooner they start competing at home, the sooner they'll develop the skills to tangle with AT&T and BT around the world.
SPRINT'S FRANCO-GERMAN ALLIANCE
-- Creates a telecom entity with combined revenues of $78.1 billion, large enough to compete with AT&T and BT-MCI
-- Gives all three companies clout in the market for global networks
-- Infuses $4.2 billion in new capital into Sprint
-- The pact may be sidetracked by officials in Europe and the U.S., who see potential regulatory problems
-- The three partners will have to prove they can get along
-- European carriers may not have competitive skills