At&T Is Courting An Ailing French Dowager

The quest seems odd: AT&T, the global telecom dynamo, woos Europe's sickest computer maker, France's Groupe Bull.

But with Europe's big bang in telecommunications deregulation looming in 1998, AT&T is desperate to gain a foothold in Europe as a provider of phone and multimedia services. Taking a stake in Bull, which has lost $3.9 billion over the past five years, could give AT&T the political leverage it needs to do that. "It's an entry ticket, not a dancing partner," says Bill Ablondi, telecom analyst at BIS Strategic Decisions, a Norwell (Mass.) market researcher.

The move is part of the effort AT&T launched earlier this year to revamp its European strategy. After more than a decade mf false starts, the company still has only a minor role in the European equipment market. Now, Pier Carlo Falotti, who took over in February as AT&T's new chief executive for European operations, is looking for partners to help him win a big slice of the $160 billion European telecom-services market (table). So far, AT&T has 3% of the public-switch market and about 1% in services. "We in Europe have to become a significant part of AT&T'S [global business]," insists Falotti. "The market is huge, and we haven't begun to tap it."

"BACKDOOR ENTRY." The pressure is on. Rivals MCI Communications Corp. and Sprint Corp. already have alliances with the biggest operators. MCI has teamed with British Telecommunications, and Sprint has a tentative deal with France Telecom and Deutsche Bundespost Telekom.

Bull, which has little telecommunications expertise, doesn't begin to stack up to those partners. But it's a halfstep in the right direction. In exchange for taking a large stake in Bull, AT&T is asking for a license to operate in the French market. It's unlikely the French government would allow AT&T alone to compete with France Telecom's monopoly before the 1998 market opening. But there is a chance that deregulation may arrive sooner, especially since European and U.S. regulators have said they will not approve Sprint's alliance with French and German partners unless those two countries open their markets.

Under that scenario, AT&T's stake in Bull would give it a headstart wooing Bull's best customers in France, Italy, and Britain. "This represents a great opportunity for AT&T to get a backdoor entry to the French market," says Berge Ayvazian, senior vice-president at researcher Yankee Group Inc. But there's also risk. Analysts question when Bull will turn a profit and note that AT&T has had difficulty making alliances work in Europe.

But for a quick start in 1998, AT&T must cobble together a string of alliances to form an alternative network to those of state monopolies. "It cannot build a network from scratch. It's too expensive and too time-consuming," says Bill Coleman, a telecom analyst for James Capel & Co. in London. On Nov. 17, the European Union gave a green light to future competitors to build or use rival networks, such as cable or utility lines, starting in 1998. Bull's own internal telecom network could become one link in a future AT&T network to rival France Telecom's.

LAST DOLLOP. Although there will be some opposition in France to selling a big stake in Bull to a foreigner such as AT&T, officials may be desperate enough to embrace the solution. France is under pressure from Brussels to privatize Bull by next June, following European Union approval of one last giant dollop of state aid totaling $2.1 billion. AT&T and partner Quadral, a French electronic-signaling-system company, have proposed taking a 40% stake in Bull, worth an estimated $200 million. That might provide the only alternative to breaking up the computer maker, an option its strong unions would staunchly oppose.

Whether or not the French government selects AT&T in the upcoming bidding contest to privatize Bull, AT&T will redouble its efforts to link up with partners in Europe. "Alliances are indispensable," says Falotti. AT&T may soon take a stake in the international unit of Spanish operator Telefnica de Espaa, according to sources close to the negotiations. AT&T is also considering a stake in the Belgian operator Belgacom and one in Unisource, the consortium of Swiss, Swedish, Dutch, and Spanish telephone companies offering private network services.

AT&T's muscle in Europe may still be weak, but once the company is allowed to act like a local, it could suddenly develop new strength. "AT&T doesn't give up easily," warns Bruce Rabuffo, Nynex Corp.'s chief operating officer in London. That's something no rival in Europe doubts.

      -- Would buy with a French partner a 40% stake in state-owned Bull, the troubled computer maker, in return for a license to operate in the French market
      -- Vying for stakes in Belgium operator Belgacom, the Czech Republic's SPT Telecom, and the international operations of Spain's Telefnica
      -- Equity investment in Unisource, the Swiss, Swedish, Dutch, and Spanish venture that offers private network services throughout Europe
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